California voters will decide on Proposition 40 soon, but looming over the controversial billionaire wealth tax proposal is another state ballot measure from nearly 50 years ago.<\/p>\n
In 1978, voters approved Proposition 13, which capped property taxes at just 1% of assessed value, limited annual hikes to 2%, and allowed reassessments to market value only after sales or substantial renovations.<\/p>\n
It came amid a wider tax revolt leading up to Ronald Reagan\u2019s election as president and an era of conservative governance in America. After Prop 13\u2019s passage, the state had to find other ways to raise more revenue and relied more on taxing incomes, including capital gains.\u00a0<\/p>\n
California now has the most progressive income-tax structure in the country with a top marginal rate of 13.3%. When combined with federal income tax rates, that can send the total to more than 50%.<\/p>\n
The top 1% of earners<\/a> account for up to half of state revenue, though it also means state coffers are volatile and swing on stock market returns. At the same time, the ultra-wealthy often don\u2019t receive much income and instead leverage assets to finance their lifestyles, avoiding some taxes.<\/p>\n Now enter the billionaire tax, which calls for residents worth more than $1 billion to pay a one-time tax equivalent to 5% of their assets. The union pushing Prop 40 has said the wealth tax could raise $100 billion in revenue and help offset federal cuts to health spending. <\/p>\n Supporters point to the AI boom and say California\u2019s ultra-rich would still be among the world\u2019s wealthiest. Opponents have warned about the impact the tax could have on economic growth and startups. They have also said\u00a0it would force founders to sell<\/a>\u00a0big pieces of their companies and eventually cause the wealthy to flee to another state, resulting in a net loss of revenue<\/a> over time. <\/p>\n If California is looking for a large source of undertaxed wealth, \u201ca much better, bigger target lies right beneath their feet,\u201d according to Princeton economist Owen Zidar and University of Chicago Booth School of Business economist Eric Zwick, authors of the book The Everywhere Millionaire<\/a>.<\/p>\n