Politics 4 min read By Alice Ashford
Californians reject billionaire tax as Prop 42 leads after Sergey Brin-funded campaign
Voters appear to have rejected Proposition 40, the state's billionaire tax, while Proposition 42, a rival measure backed by a campaign largely funded by Google co-founder Sergey Brin, is leading and would bar similar future levies.
California voters have appeared to reject Proposition 40, the so-called billionaire tax, while a competing measure, Proposition 42, was leading with about 51.6 per cent of the vote with roughly 83 per cent of ballots counted, according to Associated Press figures reported by KQED. Proposition 42 would bar new taxes on personal property, financial assets and retirement savings, and would also block most retroactive taxes, meaning it could stand in the way of any future wealth tax in the state.
The campaign behind Proposition 42, Building a Better California, was funded largely by Sergey Brin, the Google co-founder, who gave the committee $102 million. According to the California Fair Political Practices Commission, the committee spent more than $300 million across Propositions 40, 41 and 42. Proposition 41 failed, leaving Proposition 42 as the only remaining alternative. Both Proposition 41 and Proposition 42 were drafted so that they would void Proposition 40 if they received more votes, a mechanism that now appears to be central to the outcome.
Proposition 40 was defeated statewide, although San Francisco and Los Angeles counties supported it, while Santa Clara County voted against it. Backers of Proposition 42 argue that it protects 401(k) plans, pensions and individual retirement accounts from new taxation. Critics counter that Proposition 40 would have reached retirement accounts only through the large Roth IRAs held by billionaires, and that the measure was aimed at a narrow group of very wealthy residents.
The debate has centred on how much revenue the wealthiest Californians generate. Billionaires account for about 2.5 per cent of state income tax revenue, an estimate of roughly $3 billion a year, according to figures cited in the reporting. The Legislative Analyst's Office has found that the top 2 per cent of earners pay about half of the state's income tax. The same office estimated that billionaire departures would cost the state under $1 billion a year. Reports said that figures such as Peter Thiel and Larry Page had considered leaving the state, and Brin now lists a Nevada address.
Other tax issues are also in play. The stepped-up basis loophole, which allows heirs to avoid tax on unrealised capital gains, costs the state about $5 billion a year according to an estimate from the California Budget and Policy Center. Law professors have warned that Proposition 42 could threaten capital gains taxes, including Proposition 3, which would make permanent a tax increase on the top 2 per cent of earners that is otherwise set to expire in 2031. The Yes on 42 campaign has dismissed the capital gains concern as false, and the courts may ultimately have to decide the question.
Proposition 42 would also limit retroactive budget fixes, except in declared fiscal emergencies, at a time when the state faces pressure on its budget. Federal legislation known as H.R. 1 is expected to cut about $30 billion a year from Medi-Cal, the state's health programme, which covers more than half of California's children and 2.2 million seniors and people with disabilities. Backers of the billionaire tax have said they will keep pushing for it, but any new wealth tax would first require Proposition 42 to be undone.
Source: fortune.com
4
