‘Trojan horse’: California’s top 1% pay nearly half the state’s income taxes. Prop 40 opponents warn the billionaire tax could reach everyone else

California's wealthy residents have been bearing a disproportionate share of the state's income tax burden, with the top 1% of households accounting for nearly half of all personal income tax revenue, according to the Hoover Institution. This disparity has become more pronounced during economic booms, such as the recent stock market rally, when the top 1% paid over $60 billion in California personal income taxes in 2021.

In contrast, the state faces severe budget shortfalls when the market declines, as seen during the Great Financial Crisis. Prop 40, a ballot initiative pushing for a wealth tax on billionaires, aims to address this imbalance by imposing a 5% tax on the assets of residents with a net worth exceeding $1 billion. Opponents of the measure, however, are warning that it could be the first step toward imposing similar taxes on all Californians, and that the "Trojan horse" could ultimately affect everyone.

The initiative's backers, including the Service Employees International Union-United Healthcare Workers West, argue that the tax could raise $100 billion in revenue, which could help offset federal cuts to health spending. They also assert that it would not harm Silicon Valley, given the state's substantial share of new venture capital funding.

However, critics caution that the tax could disproportionately impact illiquid assets like unrealized capital gains and privately held stock, which are crucial for startups.