California’s Billionaire Tax (and the Efforts to Nullify It)

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SPEAKER_2 (0:37)

A dark night, a quiet house, but inside, danger was lurking.

Mike (0:41)

Oh, not really.

SPEAKER_4 (0:42)

We have Xfinity Shield, so we're not worried.

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What if protecting your home and devices could be drama-free?

Mike (0:48)

Xfinity, imagine that.

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Mina Kim (0:52)

Welcome to Forum. I'm Mina Kim.

Voters are weighing in on what's been one of the most divisive ballot measures, mainly for Democrats, and that's Proposition 40, better known as the billionaire tax. The one-time 5% tax on billionaires to fund mainly health care in California may sound simple on its face, but it's complicated, has ignited heated debate, and counter-ballot measures, Props 41 and 42, that would nullify the billionaire tax even if passed. We break it all down this hour with KQED's political correspondents, Marisa Lagos and Guy Marzerati. Hey, you two.

Guy Marzorati (1:31)

Hey, good morning.

Mina Kim (1:32)

So let's first review the nuts and bolts of this. Guy, what does Prop 40 do?

Guy Marzorati (1:37)

So yeah, one-time 5% tax on the wealth of billionaires in California with 90% of the money going towards health care, which could potentially backfill some of the federal cuts to Medicaid, and then 10% going to a mix of education, food assistance, a lot of leeway if this passes for the state legislature to decide exactly how that money would get spent.

Mina Kim (2:04)

So how many billionaires do we have, Guy?

Guy Marzorati (2:08)

Over 200 in California, and that is an argument you've heard proponents make as to why this tax could potentially be easy to administer. Is you're working within a limited universe of people who this would actually apply to, even though that limited universe is made up of folks with lots of money to hire lots of lawyers and potentially drag out the enforcement of this tax, even if it were to pass.

Mina Kim (2:36)

And based on where their net worth was on January 1st of this year, right, Marisa?

Marisa Lagos (2:42)

Yeah, so I mean, this is sort of part of the idea of structuring this by the backers was to avoid some of the pushback they knew would come. And so one of them was the idea that you could just avoid the tax by moving out of state. So they wrote into this, if you were a resident of California as of January 1st of this year, you are subject to this tax, regardless of whether you've moved since then.

Guy Marzorati (3:08)

Yeah. You're reading it, it's too late.

Marisa Lagos (3:10)

Exactly, and also the one-time nature. Now, that will be litigated if it's passed because as this was getting on the ballot in December, and it was clear that they were moving forward with this, you did see some folks, including Sergey Brin, who's been, I believe, the biggest single donor to the No 140 effort, Google co-founder. He claims that he has moved his residency to Reno, Nevada prior to that January 1st deadline. I would bet that will be litigated by the courts because the state will say, no, actually, you still live here. And there's been a lot of reporting that he's still in Mountain View every day, like working on AI at Google. So I don't know.

We'll see. I mean, a lot of this might be litigated if it passes.

Mina Kim (3:49)

Well, the other question that can be a little confusing is, what counts toward this net worth calculation, Marisa, of a billion dollars?

Marisa Lagos (3:58)

The bulk of it is going to be stocks, bonds, assets that are traded in the financial markets and are visible, essentially, because they have to be declared because they're publicly traded. It also does include artwork, not most real estate, but properties, things like yachts.

So our tax system broadly relies on people to essentially declare what they made, what they have. Obviously, your W-2 is a way the government can check that. But it is the honor system and this would be no different. Essentially, when you file your taxes next year, there's going to be a little question, are you a billionaire? If you check yes, then you need to essentially file an affidavit attached to it listing your assets. And so that is going to be at least the initial mechanism to sort of decide what is the level of which you would have to pay this tax if you are indeed a billionaire. I think most of us won't have to worry about anything after checking that no box.