San Francisco Democrats break with their party over the billionaire tax—and reveal how deeply Prop 40 has split the left

The Democratic Party is more divided than ever over taxing billionaires, as San Francisco Democrats have broken away from their statewide party over California’s proposed billionaire wealth tax. The San Francisco Democratic Party voted 17-4 to oppose Proposition 40, with five members abstaining and five absent. Nancy Pelosi declined to endorse the measure, which comes weeks after the California Democratic Party endorsed it following a contentious vote that surpassed the 60% threshold.

California relies heavily on wealthy residents for tax revenue, and a tax that could prompt some of them to leave might weaken the state’s existing revenue base. Six billionaires have already left California prior to the January 1 deadline. Mark Cuban argues that the billionaire tax could negatively impact startups in California, as many of these tech founders are "cash poor, stock rich."

Proposition 40 imposes a one-time 5% tax on net worth of individuals with over $1 billion in assets, with 90% of the revenue directed towards healthcare services. The state Legislative Analyst's Office estimates that the measure could generate tens of billions in temporary revenue over several years. However, there are concerns that some billionaires might respond by leaving the state or altering their behavior to reduce taxable income, potentially reducing state income-tax revenue by less than $1 billion annually.

The ultrawealthy are also exploring ways to avoid the tax, with billionaire-backed Propositions 41 and 42 aiming to void the billionaire tax by requiring state audits of programs funded by new special taxes and outlawing retroactive taxation, respectively. California Governor Gavin Newsom and gubernatorial candidate Xavier Becerra oppose Proposition 40, further highlighting the deep split within the left.