Inside California’s Proposed 5% Billionaire Wealth Tax

California’s proposed “2026 Billionaire Tax Act” would impose a one‑time 5% tax on the net worth of California‑connected billionaires, but it faces significant political, legal, and practical headwinds, making its ultimate passage and implementation uncertain, with a meaningful risk of being delayed or narrowed even if voters approve it.

Core Design

• One‑time 5% tax on worldwide net worth above roughly $1B, with a phase‑in around the threshold so those barely over do not pay the full rate.
• Applies to California tax residents (and certain part‑year residents and trusts) as of January 1, 2026, with valuation as of December 31, 2026.
• Taxes global assets including public and private business interests, fund positions, real estate, collectibles, grantor and certain other trusts.
• Allows payment over several years (generally five), with interest or additional charges on unpaid balances.
• Targets about 200–250 billionaires, with projected revenue near $100B, largely earmarked for health and social programs.

Political and Legal Odds

• It is advancing as a ballot initiative; with adequate funding, getting it onto the November 2026 ballot is more likely than not.
• Voter approval is uncertain: polling shows significant support for “taxing billionaires,” but business groups and the governor are opposed and will fund strong opposition messaging.
• Even if approved, retroactive features and taxation of worldwide wealth are expected to trigger immediate constitutional challenges that could delay, narrow, or block the tax.
• Expert commentary anticipates immediate, aggressive litigation on issues including:
  • The state’s authority to impose a one‑time excise tax on net worth.
  • Retroactivity and reliance interests of taxpayers.
  • Apportionment of tax for those with multi‑state connections and complex structures.
• Enforcement would require California to build a valuation and audit infrastructure for illiquid assets (venture, private equity, carried interest, private operating companies) that it does not currently have, which could be slow, expensive, and error‑prone.

Implications for Billionaire Clients and Advisors

• This is not a fringe proposal, but neither is it a slam dunk. Even if voters approve the measure, its aggressive legal posture (retroactivity, worldwide wealth base, apportionment issues) makes sustained, unmodified enforcement highly unlikely; however, there is a credible chance of some form of high-end wealth tax emerging.
• Key planning considerations:
  • Review California residency status and long‑term location plans, especially for clients already considering relocation.
  • Model a 5% net‑worth call on illiquid, concentrated positions and identifying potential liquidity sources.
  • Stress‑test trusts, holding companies, and charitable structures in light of the proposal’s look‑through rules.

For now, the most constructive stance is to quantify potential exposure, keep options open on residency and liquidity, and monitor developments closely with California‑focused tax counsel, rather than making disruptive moves based solely on headlines.