California voters are preparing to decide on Proposition 40, a one-time wealth tax targeting billionaires who were residents of the state as of January 1, 2026 and held more than $1 billion in covered assets. The proposed tax would be set at 5% of net worth, with real estate, pensions, and retirement accounts generally excluded from the calculation. According to the state's Legislative Analyst’s Office, ninety percent of the revenue generated would be allocated to healthcare initiatives [1].
Former Reagan economic advisor Art Laffer, speaking on FOX Business’ 'Varney & Co.', strongly criticized the measure, warning that it could accelerate the departure of California's wealthiest residents. Laffer described Proposition 40 as 'the single most important proposition on ballot today in America,' asserting that the tax would 'destroy California' by making it unattractive for individuals seeking to build and retain large fortunes [1]. He emphasized that while income taxes have not significantly impacted billionaires, this wealth tax would directly affect them and could lead to an exodus [1].
The Legislative Analyst’s Office estimates that the tax could generate tens of billions of dollars over several years. However, it also notes that responses such as billionaires leaving the state could reduce California's income-tax revenue by less than $1 billion annually [1]. Laffer further tied the debate to broader wealth tax initiatives, referencing the Democratic Socialists of America and historical attempts to tax the rich, which he argued have consistently failed [1].
While Laffer dismissed the broader socialist movement, he stressed the seriousness of the California proposal, reiterating his belief that it would 'ruin California' [1].
CONCLUSION
California's Proposition 40 wealth tax proposal has sparked strong warnings from economist Art Laffer, who believes it could drive billionaires out of the state and harm its economic attractiveness. The Legislative Analyst’s Office projects significant revenue gains but acknowledges potential reductions in income-tax revenue if wealthy residents leave. The market takeaway is that the measure could have substantial implications for California's fiscal landscape and its appeal to high-net-worth individuals.