California is preparing to put one of the most ambitious (and controversial) wealth taxation proposals in U.S. history before voters. The 2026 Billionaire Tax Act, currently under review by the state Attorney General, would impose a one-time 5% tax on residents whose global net worth exceeds $1 billion. The measure is designed to address what supporters describe as a looming healthcare funding crisis, with projections that the state could lose as much as $30 billion per year in federal Medicaid and other healthcare support or up to $100 billion over five years, depending on the estimate.

How the Revenue Would Be Used

Under the initiative’s framework, approximately 90% of the funds raised would be directed to healthcare services across the state, including hospitals, clinics, long-term care, and home health services. The remaining 10% would go to K–12 public education.

Proponents estimate there are 180 to 200 billionaires in California, with a combined net worth of roughly $2 trillion. That pool of wealth implies potential gross revenue near $100 billion if the tax were fully collected. However, the proposal includes an annual revenue cap of about $25 billion, limiting the amount the state could receive in any given year.

A Broad and Unusual Tax Base

The proposed tax is unusually expansive. It applies to all forms of personal wealth, including private company equity, public stock, art and collectibles, real estate, and any other tangible and intangible property.

Importantly, the tax is based on the individual’s net worth in a specific tax year (likely 2025), and it applies to individuals who were residents during that period even if they later leave the state.

While taxpayers would have the option to pay the liability over five years, the measure includes penalties of 20–40% for underreporting or undervaluing assets, creating substantial enforcement and litigation risks.

Valuation, Enforcement, and Constitutional Questions

If adopted, the Billionaire Tax Act would be among the first U.S. taxes based on net worth rather than income, raising numerous practical and legal challenges.

Key concerns include:

  • Valuation issues: How will the state determine fair-market value for non-public or illiquid holdings, such as private company stock or unique assets like artwork?

  • Liquidity constraints: Will high-net-worth individuals need to liquidate assets, potentially at inopportune times, to cover the tax?

  • Resident flight: Could the measure accelerate out-migration of wealthy residents and their businesses, undermining the state’s income-tax base?

  • Constitutional questions: Legal experts anticipate challenges around taxing worldwide assets, taxing former residents, and potential violations of interstate commerce protections.

Implications for Business Owners and Executives

The proposal could have especially significant consequences for founders and entrepreneurs, c-suite executives compensated heavily in equity, major shareholders, and owners of closely held businesses with illiquid wealth because many of these individuals have net worth concentrated in private or restricted stock, raising complex questions about valuation, liquidity, residency planning, trust and entity structures, and long-term tax exposure. The initiative comes as California confronts broader fiscal and demographic challenges including population outflows, budget strains, and increased political interest in so-called “wealth taxes.”

Ballot Timeline and Legal Path Ahead

To qualify for the November 2026 ballot, the initiative must collect approximately 874,641 valid voter signatures. A simple majority vote would be sufficient for passage.

Should it qualify and pass, few expect implementation to be smooth. Legal challenges are widely anticipated, particularly concerning:

  • The definition of “resident”

  • Taxation of global assets

  • Retroactive application for individuals who relocate

  • Enforcement mechanisms for illiquid or difficult-to-value assets

What Stakeholders Should Watch

Businesses, high-net-worth individuals, advisors, and policymakers should closely monitor:

  • Signature-collection progress and ballot qualification

  • Definitions of “resident” and rules for part-year residents

  • Valuation methodologies for complex assets

  • Enforcement mechanisms, including audits and penalties

  • Behavioral responses, such as residency changes, asset relocation, or restructuring

  • Broader implications if the measure succeeds or fails, including whether other states pursue similar taxes or alternative wealth-based approaches