California voters have rejected Proposition 40, the state's proposed one-time tax on billionaires, the Associated Press reported Monday. The measure failed after an expensive campaign that pitted labor unions against some of tech's wealthiest figures. It was also opposed by Gov. Gavin Newsom.
Nic Carter lives about as far from Silicon Valley as you can get within the continental U.S. but his feelings about California's proposed tax on billionaires couldn't have been stronger.
Carter, a Floridian, and a general partner at the crypto-focused venture capital firm Castle Island Ventures, told TechCrunch before the vote that he thought the proposal — it was on the ballot during California's midterm election last week — would actually have been a huge win for more fiscally conservative states like his own.
"I think it'd be it would be great for Florida and Texas if these kinds of taxes pass," Carter said last week. "I think it's a shame, frankly, that California has this sort of semi-monopoly on capital formation, and that it's being squandered by local governance that's super dysfunctional."
Proposition 40, otherwise known as the California "billionaire's tax," was a ballot measure that proposed the creation of a special one-time 5% wealth tax to be levied against state residents with a net worth of more than $1 billion. The tax, which would have been applied retroactively to anyone who was residing in California on January 1, 2026, would have been used to fund a number of public programs — most notably Medi-Cal, the state's Medicaid program that provides healthcare to qualifying low-income residents.
Proponents of the proposal — largely labor unions — said it would have inconvenienced a tiny number of state residents, as California has a little over 200 billionaires who own a cumulative total of approximately $2 trillion in wealth. In return, they said, it would generate massive amounts of revenue. Its backers projected it could have raised as much as $100 billion over five years, the likes of which could then have been used to support public healthcare and education.
But opponents argued that it would scare California's wealthiest residents out of the state and ultimately disincentivize growth. The capital flight argument — that California's upper crust would permanently flee, thus draining a more consistent source of revenue for the state — dominated conversations online among business leaders in the run-up to the vote. A critical but contested analysis published before the vote claimed the proposal would actually have lost the state money over time.
Carter, who subscribes to this argument, had called the tax a "sword of Damocles hanging" over the heads of founders. The threat, he said, wasn't just from this particular wealth tax but also from anticipated future taxes.
"You're signaling to the entrepreneur class that you consider them a resource to be plundered," he said.
Carter, who frequently works in San Francisco with tech startups, claimed such a tax would "inhibit venture capital investment" because VCs "wouldn't necessarily want to invest in a company if they knew the founder was going to have to liquidate a huge percentage of their shares." The logic: since many billionaires keep a majority of their wealth tied to their companies, it would be inconvenient for newly minted billionaires to make liquid a certain percentage of that wealth just so that they could pay the tax.
Jesse Tinsely, a California entrepreneur who has spent his life working in startups, agreed. Tinsely is the co-founder and CEO of Mainstreet, a fintech holding company that owns employment sites like Employer.com and Recruiter.com. Tinsely founded his first startup many years ago and said that, based on his own experience, what he had accomplished wouldn't have been possible with the proposed tax. Additionally, he reiterated a widely held fear — that founders, who could be taxed on their corporate assets, would be incentivized to give up control over their companies.
"I bootstrapped my business. I have super voting shares, and I came from a [background as a] college dropout [and] broke firefighter with bad credit and whatnot, and built a business that's valued into the billions," Tinsely said last week. "I think it [the tax] removes the ability to do something like that."
Tinsely said he felt the proposed tax "forces founders to opt into a system" where "anyone who wants to become an entrepreneur has to…raise money or some type of capital, or move. Those are basically the only two options."
One of the key architects of the tax policy, Emmanuel Saez, told TechCrunch before the vote that fears about loss of founder control were unfounded, and not part of the design of the proposal. Saez, a French economics professor at the UC Berkeley, helped to create and promote the ballot measure alongside Gabriel Zucman, another Berkeley economist.
"The wealth tax hits you by diluting your economic ownership but [shares] can be easily structured to avoid losing any control rights," Saez said, pointing to the fact that many billionaires only own a small percent of their companies. He's also argued that stock can be structured to divorce economic ownership and voting control. Indeed, a common strategy to achieve this is called a dual-class share structure, which gives founders powerful voting rights even with limited shares.
Saez noted that AI has helped to drive a huge explosion in wealth in California but that much of that wealth is tied to a very small number of companies and individuals, many of whom won't pay much back into the state's coffers. He pointed out that California doesn't really generate that much revenue from the billionaire class anyway. The state is estimated to take in about $3 billion a year from this group, representing about 1% of the total amount of revenue brought in between 2025 and 2026.
Despite its populist appeal, Proposition 40 struggled to win over enough Californians and was ultimately rejected. Invariably, many will cite voters' lack of enthusiasm on a massive influx of spending that the bill's opponents leveraged. The spending included as much as $379 million from the coffers of billionaires like Google co-founder Sergey Brin, who funneled their money into a multi-pronged media assault designed to discredit it. The AP reported that the "no" side raised roughly 10 times as much as the "yes" side.
Supporters of the measure signaled the fight isn't over, though. The AP reported that backers said they could put a similar tax back on the ballot in 2028.
