Nothing has the Democratic Party more split than taxing billionaires. San Francisco Democrats have broken with their statewide party over California’s proposed billionaire wealth tax, rejecting Proposition 40 in a lopsided vote that exposes a growing divide over whether taxing extreme wealth is worth the potential economic consequences. The San Francisco Democratic Party voted 17–4 to oppose Proposition 40—with five members abstaining, five members absent, and one member with no endorsement. Nancy Pelosi chose not to endorse the measure. This comes just weeks after the California Democratic Party endorsed the measure in August after a contentious vote that succeeded above the 60% threshold.
California already depends heavily on wealthy residents for tax revenue, and a tax that encourages a portion of them to leave could undermine the state’s existing revenue base—and prove especially problematic in San Francisco, where the technology industry has produced a large concentration of founders, investors, and executives whose wealth has amassed in stock rather than cash. Six billionaires have already ended their California residency ahead of the Jan. 1 deadline.
“A unique feature of these 10b startups is that even if they raise a billion, little, if any of that money goes to the founders, who are now worth billions of dollars overnight,” Mark Cuban wrote on X regarding how the billionaire tax would affect startups in California. “They are the definition of cash poor, stock rich.”
Proposition 40 would impose a one-time tax of 5% on the net worth of people who were California residents on Jan. 1, 2026, with more than $1 billion in assets. About 200 billionaires would be affected by this proposal—and they hold over $2 trillion in total assets. Taxpayers could spread their payments over five years, although doing so would cost more. Ninety percent of the resulting revenue would be directed toward health care services. The state’s Legislative Analyst’s Office estimates the measure could generate tens of billions of dollars in temporary revenue over several years.
“This temporary increase in state tax collections would be spread across several years. Exactly when and how much the state would collect is very hard to predict for many reasons,” the office noted. “For example, it is hard to know what actions billionaires would take to reduce the amount of tax they pay. Also, much of the wealth is based on stock prices, which are always changing.”
Revenue potential vs. billionaire exodus
That revenue potential is the central thesis from Prop 40’s supporters. SEIU–United Healthcare Workers West placed the initiative on the November ballot, and the California Labor Federation, the Teamsters, and progressive politicians including California Rep. Ro Khanna and Vermont Sen. Bernie Sanders back it.
According to a poll from the Institute of Governmental Studies at the University of California, Berkeley, 48% of potential voters would support the billionaire tax proposition, compared with 41% who would oppose it.
But the proposition does not come with ways for California billionaires to dodge the tax. California’s Legislative Analyst’s Office says some billionaires could respond by leaving the state or changing their behavior in ways that reduce the amount of income tax they pay. The office estimates those responses could reduce ongoing state income-tax revenue by less than $1 billion annually. The state would also incur tens of millions of dollars in administrative costs over several years to assess and collect the new tax.
And the ultrawealthy are not just looking to leave. Billionaire-backed Propositions 41 and 42 would also effectively void the billionaire tax—funded through political organization Building a Better California. Proposition 41 would require state audits of programs funded by new special taxes, making it harder for the state to use funds raised by the billionaire tax. Proposition 42 would outlaw retroactive taxation, directly countering Proposition 40 and killing the wealth tax.
Multiple high-profile billionaires have backed these measures, including Ripple cofounder Chris Larsen—who gave an extra $10 million. Other billionaires include Google cofounder Sergey Brin and former Google CEO Eric Schmidt, who have contributed over $118 million in total.
Khanna, a Silicon Valley Democrat and one of Proposition 40’s most prominent political supporters, took to X earlier this month championing the policy. During his X campaign, Khanna proposed a mechanism under which founders could pledge shares to the state and receive a government loan to pay the tax—which, according to the congressman, would be nonrecourse. This sparked backlash from billionaires in California and beyond, with ultrawealthy businessman Mark Cuban and Anduril Industries founder Palmer Luckey among those who entered a grudge match with the California representative.
The dispute also helps explain why San Francisco Democrats were willing to break with their statewide organization. According to the San Francisco Democratic Party’s 2020 endorsement page, it could not endorse state propositions—noting it was “the role of the California Democratic Party.” But earlier this summer, the local party changed its bylaws to allow it to depart from California Democratic Party endorsements. The Prop 40 vote became the only statewide ballot proposition on the group’s agenda—and it came back 17–4.
The San Francisco Democratic Party did not immediately respond to a request for comment from Fortune.
The political split is also broader than San Francisco. California Gov. Gavin Newsom has openly opposed Proposition 40, as does gubernatorial candidate Xavier Becerra.
“It became certain that a wealth tax would be placed on the November ballot in California,” Newsom wrote in a Substack post in June. “I’m voting no.”