California’s reputation as a hub for innovation and entrepreneurship may soon collide with an ambitious new tax proposal. Initiative 25-0024, known as the 2026 Billionaire Tax Act, would levy a proposed “one-time” 5% excise tax in tax year 2026 on applicable individuals and trusts with a net worth of $1 billion or more. It would tax all “forms of personal property and wealth, whether tangible or intangible.” The initiative broadly defines an “applicable individual” to include California residents and part-year residents as far back as January 1, 2025, reminiscent of the Eagles anthem “Hotel California”: “You can check out anytime you like, but you can never leave.”
Filed with the California Attorney General’s Office late last month by the Service Employees International Union (SEIU), Initiative 25-0024 is currently undergoing a 30-day public review process. During this time, members of the public can submit comments on the proposed initiative and the SEIU can submit amendments to the initiative that are “reasonably germane to the theme, purpose, or subject of the initiative measure as originally proposed.” Cal. Elections Code § 9002(b). The attorney general also generally has 65 days (here, until December 26, 2025) from the date the proposed initiative was first received to issue a circulating title and summary, which will be the official summary of the proposed initiative measure. Thereafter, proponents have a maximum of 180 days to collect at least 874,641 voter signatures to qualify for the November 2026 ballot. If qualified, Initiative 25-0024 may only require a simple majority vote to pass.
The SEIU has framed Initiative 25-0024 as a cure to the anticipated $30 billion annual state budget shortfall from federal funding cuts to California’s Medicaid program. The SEIU also argues that the proposed tax is “fair” because “billionaires have used state resources to create their enormous wealth and were the largest beneficiaries of the federal legislation that contributed to the current California budget crisis.” Citing research from the Fiscal Policy Institute, which shows that high earners move out of state at lower rates than individuals in other income brackets, even in response to a personal income tax increase, some proponents claim that threats of a mass exodus are just that – idle threats.
But opponents remain skeptical, pointing to the graveyard of billionaire wealth tax proposals – Assembly Bill (AB) 259, AB 2289, AB 310, and AB 2088 – that have been introduced and abandoned by the California legislature in the past five years. Moreover, the history of California is replete with so-called “one-time” or otherwise “temporary” levies that ended up being permanent. It is unclear whether this initiative will help or hurt California in the longer term. Given that the top 1% of taxpayers pay more than 40% of California personal income taxes, if even some of those high-net-worth individuals are incented to leave California, the gap in tax collections could grow even larger, increasing the annual tax burden upon those taxpaying residents who remain in California.
If enacted, Initiative 25-0024 likely will invite constitutional challenges on multiple grounds. For example, imposing a retroactive tax arguably violates California due process protections. Additionally, challenges likely will be filed on behalf of nonresidents who no longer have nexus with the state (i.e., persons who were California residents as of January 1, 2025, but are no longer residents in tax year 2026). Some of these challenges (and others) may be successful, but even if not, high-net-worth individuals and trusts may simply renew their focus on tax planning strategies to mitigate the impact.
Administrability issues also are certain to arise as the initiative would only reimburse the California Franchise Tax Board (FTB) up to $15 million annually for the “actual and necessary costs” of administering the tax. By comparison, FTB estimated that it would need $200 to $300 million per year to administer the 1.5% billionaire wealth tax proposed in 2023 under AB 259.
Although Initiative 25-0024 is framed as a “one-time” excise tax, its policy implications could be far-reaching, touching questions of tax fairness, state competitiveness, and the limits of state taxing authority. We will continue tracking updates as Initiative 25-0024 continues through the ballot approval process. Please contact the authors with any questions about this proposed initiative.
