This November, Californians will find multiple new initiatives on their ballots including a proposed wealth tax trained on billionaires residing in California. If passed, the tax would apply to anyone who was a California resident on January 1, 2026 with a net worth exceeding one billion dollars – even those who have since left the state.
In July 2025, Congress enacted a law opponents say could reduce federal funding for certain California healthcare programs, potentially contributing to the state’s projected budget shortfall and increasing financial pressure on its healthcare system. In response, the Service Employees International Union-United Healthcare Workers West (SEIU-UHW) proposed a wealth tax on California’s wealthiest residents. The group is seeking to address the state’s fiscal challenges and balance the perceived wealth inequity in the state.
The 2026 Billionaire Tax Act or Proposition 40 would place a one time 5% tax on California billionaires with proponents estimating it could raise approximately $100 billion. Supporters of the tax hope to fund the California health system with the money it raises. Unfortunately, the tax is not as simple as it seems; it carries implications and negative repercussions, overlooked by a multitude of its proponents.
California’s nonprofit sector employs approximately 1.4 million workers in 501(c)(3) charitable organizations, roughly 7-8% of the entire state workforce. In the last quarter of 2025 alone, these charities paid $30.1 billion in wages. A substantial portion of the California economy relies heavily on philanthropic donations to thrive.
However, wealth taxes have historically prompted individuals to reduce their donations to foundations and charities. When met with a wealth tax, donors in Norway decreased their giving by 26% and were 27% less likely to give at all. This type of reaction leaves nonprofit organizations struggling without the financial backing they had planned for, impacting the individual organizations and the entire industry. A wealth tax would threaten the success of the nonprofit sector in California, potentially spilling over into other parts of the state’s economy.
According to a guest essay published by The New York Times, an estimated 30% of the wealth held by California billionaires has already left the state’s tax base, as some high-net-worth individuals relocated either before the January 1, 2026, deadline or in anticipation of potential future wealth taxes. The essay estimated the lost tax revenue from these billionaires will amount to about 25 billion dollars.
Gov. Gavin Newsom has consistently opposed the proposed state ballot measure, saying a state-only tax would encourage wealthy residents to relocate and weaken California’s tax base. This does not mean, however, he is against the idea of wealth taxes. On June 26, 2026, Newsom proposed a national tax on high-net-worth individuals.
Rather than allowing California to independently endure the economic blowback of a localized wealth tax, he has suggested expanding the impacts of a wealth tax to other states. Newsom says a nationwide policy, likely with similar negative consequences to the proposed California wealth tax, would reduce the incentive for taxpayers to move across state lines.
As he said, “You may not be able to pick up and move to Texas or Florida to shelter your income from taxation, but I promise you that billionaires can, and do.”
And they have. Because of the threat the wealth tax poses and the precedent it sets, multiple billionaires have begun cutting ties with California, including co-founders of Google, Larry Page and Sergey Brin. This “capital flight,” prompted by the risk of wealth taxes, deprives California of the substantial tax revenue it would otherwise receive from these billionaires. This effectively lowers the state’s income by denouncing an individual’s right to wealth.
Unlike income taxes, wealth taxes are levied on the total value of an individual’s assets, including non-cash assets that produce little or no cash income. Paying the tax often requires drawing on liquid assets, leaving fewer resources available for charitable giving. Philanthropists such as those targeted by the proposed tax initiative often give from appreciated assets, investment holdings and accumulated wealth rather than from an annual income.
Tax obligations are legally enforced and charitable commitments are voluntary. So when a wealth tax is established, a donor faces significant wealth tax liabilities. This may compete with their philanthropic commitments by reducing the assets available for charitable giving, leaving charities without their required patronage.
Philanthropy has the flexibility to serve communities’ demands in a way that fits best, often responding to local needs as they arise. This is something governments and their programs often cannot do in a timely manner. Because philanthropy is privately directed, more experimentation and innovation can take place. This can often lead to successes that are then emulated by government programs.
The many nonprofit organizations funded by generous donors include food banks, homelessness services, poverty alleviation, medical research and community health initiatives. The reaction to the Norwegian wealth tax shows what can happen when charitable support declines. Nonprofit organizations may find it more difficult to sustain services that address many of the same social challenges the tax is intended to help address.
The supporters of the California ballot initiative assume the influx of government income and subsequent spending can offset any reduction in private giving. Per contra, history has shown philanthropy and government serve distinct functions.
The proposed wealth tax raises important questions about its impact on charitable giving and the nonprofit sector. Californians should consider the impact of the proposed wealth tax, particularly for its effects on private philanthropy. The threat it poses to philanthropy has the potential to divert charitable dollars from many projects and ventures statewide that government cannot make up for.
Kylan Olson is a rising junior at Utah State University and a Daniels Scholar Junior Fellow at Philanthropy Roundtable. Founded by cable pioneer Bill Daniels, the Daniels Fund supports individuals and communities across Colorado, New Mexico, Utah and Wyoming through charitable grants and scholarships that create life-changing opportunities, including the Roundtable’s Junior Fellowship program.
