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The 2026 Billionaires Tax Act sent shockwaves across the U.S. This law is generally defined by the proposed five percent one-time tax on the net worth of California residents if they have more than a billion dollars in wealth. There are clear theoretical arguments to be made for the bill’s passage, as it would raise an estimated $100 billion for health and education needs. However, recent analysis shows that the design choices and current wording of the act could have devastating legal and financial consequences, including taxing some billionaires well beyond the proposed five percent rate. This article summarizes the current status of California’s proposed billionaire tax, recent criticism of the law, and how some of the law’s design choices may need to be reconsidered before it potentially goes to a vote.
California’s billionaire tax proposal
As I previously covered in a Forbes The Billionaire Tax Act of 2026 was filed by Jim Mangia, president and CEO of the St. John’s Community Health, and Suzanne Jimenez, who represents the health care union SEIU-UHW, in October 2025. The law has since been passed into law on November 25, 2025. 25-0024. The act is currently gathering signatures to appear on the November 2026 election ballot.
THE Billionaires Tax Act of 2026 imposes a 5% tax on the wealth of California residents who have accumulated more than $1 billion in wealth. The tax is unusual because it is a tax on wealth, not income, and the tax will include payments related to unrealized profits. According to Forbesthis act would raise $100 billion from California’s 200 or more billionaires between 2027 and 2031 (assuming no taxpayer immigration or successful legal challenges), and those funds would replenish funding for California’s Medicaid program and children’s education.
According to the bill, taxpayers’ property would be defined by “personal property and property, including capital stock, bonds or other evidence of indebtedness and any legal or equitable interest therein.” Thus, the bill takes the position that all assets will be considered in determining whether a taxpayer is a billionaire and subject to the estate tax.
The bill allows for a phase-in that would subject taxpayers to a five percent tax in full once their wealth reaches $1.1 billion. Only a small amount of assets (up to five million dollars) can be excluded from a taxpayer’s net worth when calculating billionaire status and estate tax liability.
Although the bill won’t be voted on until November, the initiative proposes a retroactive effective date of January 1, 2026, a feature that could face legal challenge. As currently written, this retroactive implementation would immediately subject California’s billionaires to the five percent estate tax.
Recent Review of California’s Billionaires Tax
The proposal has already caused significant backlash among California’s billionaires. According to the New York TimesPeter Thiel and Larry Page have openly discussed leaving California because of this tax. In addition, FoxBusiness reports that real estate agent Julian Johnston is working directly with three billionaires to move from California to South Florida because of this billionaire estate tax.
California already imposes the highest and most progressive income tax rate in the US, with a top marginal tax rate of 13.3% on income over $1 million. This billionaire wealth tax would represent an additional tax on high net worth taxpayers on top of the already high taxes they pay, leading to potential perceived inequality against this tax.
However, not all California billionaires are opposed to this plan. According to CNBC, Nvidia’s Jensen Huang said the additional taxes owed (a reported $7.75 billion) are “perfect” with him. While this news is promising, it should be taken with caution for two reasons.
First, even if some California billionaires pay the estate tax, if a significant number do not pay and contest their payment, California may lose that tax revenue both for the estate tax and in the future. Second, just because a billionaire says he’ll support it doesn’t mean he actually will. In fact, just two and a half years ago, Jeff Bezos endorsed the proposed Washington billionaire. According to the Tax Foundationhe then announced a move to Miami, Florida, shortly before his vote, allowing him to forego paying any property tax and overturning the potential of the legislation.
Probably the biggest criticism of this legislation is not from the billionaires themselves, but, instead, from the state’s current Governor, Gavin Newsom. According to the Los Angeles TimesNewsom strongly opposes this ballot measure, saying it’s poorly designed and won’t end up helping the essential government services it’s aimed at. Given Newsom’s prominent role in both the state and national Democratic Party, his opposition likely carries a lot of weight among likely voters this November.
Potential Plan Selection and Pension Issues in the California Billionaire Tax
In theory, funding health care and education needs by asking billionaires to contribute a small percentage of their wealth might seem like a popular and reasonable path to addressing a key problem in California. However, many issues have already been raised with this plan.
For example, Baker Botts emphasizes that issues such as Dormant Trade Clause lead to its failure Fully automatic testing because worldwide assets will be subject to California tax. This article also highlights numerous legal concerns related to the retroactive nature of the legislation, as the legislation targets specific individuals (Bill of Attainder), the Uniformity clause of the California Constitution, among others.
THE Tax Foundation points out that, as a function of design problems and possible drafting errors, the five percent estate tax is actually much higher than that. Specifically, a billionaire’s valuation is based on voting interests. The article uses Tony Xu, the founder of DoorDash, as an example. Xu owns 2.6% of the company but controls 57.6% of the votes. In this example, Xu has a net worth of $2.41 billion based on his ownership in the company. However, as a consequence of the bill as currently written, Xu’s tax consequence would be $4.17 billion, or 173% of his company’s ownership.
The Tax Foundation article points to five other California billionaires whose tax liability far exceeds the advertised five percent, including David Baszucki (Roblox), Sergey Brin (Alphabet), Larry Page (Alphabet), Mark Zuckerberg (Meta) and Jensen Huang (Nvidia). This raises questions about whether affected taxpayers will remain in California because of the unusually high estate tax rate they would face.
Other considerations raised by the article are that the tax may force billionaires to sell a large number of their shares (potentially depressing the share price and causing other financial issues), valuation rules for private companies may lead to overvaluation, large liability impairment penalties, unusual language defining anti-avoidance measures, and
While California’s proposed billionaire tax is far from reality, both the potential benefits and consequences are becoming increasingly apparent. If the billionaires decide to leave California, they will still be responsible for paying the estate tax if the law is passed. However, whether and under what circumstances this tax is challenged in court, upheld and collected is an entirely different story. So California lawmakers and taxpayers must carefully balance the costs and benefits of trying to impose such a tax on its 200 billionaires, given the uncertainty of the results.
