June 23, 2026
KEY TAKEAWAYS
- The 2026 Billionaire Tax Act is a California ballot initiative that, if approved by voters in November of this year, would impose a one-time 5% tax on the wealth of California residents with a net worth exceeding $1 billion prior to December 31, 2026. It would not be an income tax. It would be a tax on accumulated wealth, a structurally and legally distinct concept that has never been enacted at the state or federal level in the United States.
- Who would be affected: Approximately 200 California-resident billionaires. California’s Franchise Tax Board (FTB) would calculate net worth on a worldwide basis as of December 31, 2026. Directly held real estate would be excluded; virtually all other assets would be included.
- What it would tax: A flat 5% of net worth above $1 billion (with a phase-out between $1 billion and $1.1 billion). A billionaire with $5 billion in taxable net worth would owe approximately $250 million, payable by April 15, 2027, with an option to spread payments over five years at a 7.5% annual deferral charge.
What the initiative is and where things stand
The 2026 Billionaire Tax Act is a California ballot initiative that, if approved by voters in November of this year, would impose a one-time 5% tax on the wealth of California residents with a net worth exceeding $1 billion prior to December 31, 2026. It would not be an income tax. It would be a tax on accumulated wealth, a structurally and legally distinct concept that has never been enacted at the state or federal level in the United States.
Who would be affected: Approximately 200 California-resident billionaires. California’s Franchise Tax Board (FTB) would calculate net worth on a worldwide basis as of December 31, 2026. Directly held real estate would be excluded; virtually all other assets would be included.
What it would tax: A flat 5% of net worth above $1 billion (with a phase-out between $1 billion and $1.1 billion). A billionaire with $5 billion in taxable net worth would owe approximately $250 million, payable by April 15, 2027, with an option to spread payments over five years at a 7.5% annual deferral charge.
Current status: Supporters collected approximately 1.6 million signatures, nearly double the 874,641 required. The California Secretary of State has until June 25, 2026 to certify the initiative for the ballot. A simple majority vote is required for passage.
Revenue purpose: 90% of proceeds would fund a dedicated health account (primarily Medi-Cal); 10% would go to education and food assistance in response to federal program cuts.
Five questions to consider going forward:
1. Will it pass?
Passage is uncertain. Early polling is split: One poll shows 48% in support versus 38% opposed before voters hear counterarguments; another shows 52% in support versus 33% opposed. Ballot initiatives that start below 50% support have historically struggled.
Key factors working against passage include:
A well-funded opposition campaign (over $80 million raised in Q1 2026, led by Google co-founder Sergey Brin and others) has not yet begun its full advertising push. Historically, such advertising has helped erode support for new initiatives significantly.
Counterinitiatives backed by opponents, including a Retirement and Personal Savings Protection Act, may appear on the same ballot and, if approved with more votes, would supersede the wealth tax.
California Governor Gavin Newsom opposes the initiative and has incentives to broker a legislative compromise before the June 25 removal deadline that would cause the union sponsor (SEIU-UHW) to withdraw the initiative voluntarily.
Voters are skeptical: 69% believe billionaires would find ways to avoid the tax, and nearly half expect that it would be tied up in courts.
2. If the initiative passes, will it survive legal challenges?
Litigation is virtually certain. The initiative was deliberately drafted to allow legal challenges to be filed within 60 days of passage. The initiative would therefore bypass the usual “pay first, sue later” rule and go directly to the California Supreme Court on an expedited basis. This means a definitive ruling could come before the April 15, 2027 payment deadline.
In rough order of strength, the initiative’s most significant legal vulnerabilities are:
Retroactivity (strongest challenge): The tax applies to anyone who was a California resident as of January 1, 2026 – 10 to 11 months before the initiative could be enacted. Courts have historically been skeptical of taxes that create liabilities before the taxpayer could have known the law existed, particularly for a type of tax that has never existed before.
California property tax cap: The California Constitution limits taxes on financial assets (stocks, bonds, etc.) to 0.04% of value. The initiative labels itself an “excise tax,” i.e., a targeted tax on specific goods, services or activities that is usually built into the price of the item. However, courts may recharacterize the initiative as a property tax, in which case it would vastly exceed California's constitutional limit. The initiative includes a constitutional amendment designed to preempt this argument, but courts are not required to accept the framing.
Right to travel: Taxing individuals based on California residency as of a date that predates the law’s enactment may be found to penalize the constitutional right to leave a state.
Commerce clause: The tax applies to worldwide net worth, including assets in other states and countries. Courts may find this constitutionally overreaching.
Key point for advisors: The initiative contains an unusual provision — Section 50310 — that allows the California State Legislature to amend the tax by a two-thirds vote without returning to voters, so long as amendments “further the purposes” of the initiative. This is broader authority than is typical for voter-approved constitutional amendments, and it is worth monitoring.
3. Does this affect my clients who are not billionaires?
Not directly. The $1 billion threshold means this initiative, as written, affects only approximately 200 individuals in California. However, there are three indirect concerns worth raising with clients proactively:
The political momentum is real and it reaches beyond billionaires. The same movement that produced this initiative has driven new income surcharges on millionaires in Massachusetts, Washington, Maine and Maryland in the past few years, with thresholds as low as $350,000 in some states. California is not immune to this trend.
A wealth tax is unlikely to creep down to lower thresholds through the wealth tax mechanism itself. Unlike income taxes, wealth taxes become administratively harder and more legally vulnerable as one lowers the threshold. For example, Europe’s experience is instructive: Among roughly a dozen countries that had wealth taxes in 1990, all but three had abandoned them by 2019 due to capital flight, administrative complexity and valuation disputes.
From that perspective, a $100 million net worth tax would face a more difficult path toward implementation than one based on a $1 billion threshold. The valuation challenge is central to this problem: Even at the $1 billion threshold, the initiative’s formula for valuing private businesses (book value plus a 7.5 times earnings multiple) is already generating significant controversy, and appraisers face personal financial penalties if the FTB disagrees with their conclusions — a deterrent that has no parallel in income tax practice.
As the threshold for taxation moves lower, the ratio of complex, illiquid, privately held assets to total wealth actually increases, meaning more valuation disputes, more litigation and more FTB resource strain per dollar of revenue raised. No state tax authority in the country has the infrastructure to administer a net worth tax on tens of thousands of taxpayers with private company interests, partnership stakes, carried interests and closely held real estate. Building that infrastructure would cost more than it would yield at any threshold meaningfully below $1 billion.
The real risk for sub-billionaire clients is income-based. California already taxes capital gains at up to 13.3%. The more likely path for future revenue measures is elevated income tax brackets on earners above $500,000 – $1 million, increased FTB scrutiny of residency for high earners who divide time between states and mark-to-market or constructive realization rules for certain asset classes. Clients in the $10 million – $100 million range should be thinking about these risks and not the wealth tax per se.
4. Would this initiative impact the California municipal bond market?
We estimate that the net impact on California munis would be small.
This would be a wealth tax and not an income tax, so it would not affect the relative value of California munis. This legislation would not increase tax rates, so tax-equivalent yield calculations would remain unaffected.
Outmigration is possible, but even if all 200 billionaires left the state it would impact less than 1% of annual revenue. The Legislative Analyst’s Office (LAO) estimated collections of $100 billion over five years, but $900 million in lost annual income tax revenues if all 200 billionaires moved away, which is less than 1% of California’s annual tax collections.
California muni fundamentals remain strong. Our investments today are focused more on valuations rather than concerns about fundamentals in the California muni market. The state continues to run a balanced budget and has revenues that comfortably cover debt service costs.
5. What should high-net-worth clients in California be doing right now?
Even for clients well below the $1 billion threshold, this initiative is a useful catalyst for conversations about:
Residency planning: The FTB is among the most aggressive state tax authorities in the country on residency determination. Clients who divide time between California and other states should have documented, defensible residency positions in place regardless of this initiative. The January 1, 2026 retroactive residency date is a reminder of how quickly taxable obligations can become locked in.
Asset structure review: The initiative’s valuation rules reveal a meaningful planning gap: Directly held real estate would excluded from taxable net worth, but the same real estate held through an LLC or partnership would be fully taxable. Clients with entity-held real estate should understand their exposure under the initiative’s framework, even if they are not currently in scope.
Liquidity planning: For clients near or above the threshold, the April 15, 2027 payment deadline (with a December 31, 2026 valuation date) leaves very little runway for liquidity planning if the initiative passes and survives initial legal challenges. Clients with concentrated, illiquid positions in private companies or partnerships should model their exposure now.
Monitoring the legislative compromise window: The June 25, 2026 deadline for a legislative compromise, which could result in the initiative being withdrawn in exchange for negotiated legislation, may be the most likely near-term resolution scenario. We are monitoring this closely.
Quick reference Q&A
Is this a done deal? Will it definitely be on the ballot?
Not yet. The Secretary of State must certify the collected signatures by June 25, 2026. If certified, the initiative will appear on the November 3, 2026 ballot. There is also a legislative compromise window before June 25 during which the initiative’s sponsor could agree to withdraw it in exchange for negotiated legislation. As noted, Governor Newsom opposes the initiative and has incentives to facilitate a compromise.
I have a client who left California in early 2026. Would they be affected?
Potentially, yes. The tax would apply to individuals who were California residents as of January 1, 2026, regardless of where they live when the tax is enacted. However, the retroactivity of that date is one of the strongest legal challenges to the initiative. Whether it survives is ultimately a question for the California Supreme Court. Clients in this situation should consult counsel now.
Would real estate be excluded?
Directly held real estate would be excluded. However, real estate held through an LLC, limited partnership or other entity would be fully included in net worth and must be valued under the initiative’s formula approach. This is a critical distinction for clients whose real estate holdings are entity-owned, which is the standard structure for sophisticated investors.
How would private company holdings be valued?
The initiative uses a formula: book value plus 7.5 times average annual book profits, multiplied by ownership percentage. This is a blunt instrument that can significantly overstate or understate value relative to what a buyer would actually pay.
Taxpayers can submit a certified independent appraisal to override the formula, but doing so carries risk: Appraisers themselves can be penalized up to 4% of any valuation discrepancy, a deterrent with no parallel in income tax or estate tax practice. Clients with significant private company holdings should begin independent appraisals now, regardless of whether the initiative ultimately passes.
This valuation complexity is also one of the strongest structural arguments against the tax ever expanding to lower wealth tiers. At the $1 billion threshold, the FTB would already be asked to administer an untested valuation framework for approximately 200 taxpayers. Extending that framework to the $10 million or $100 million level would mean tens of thousands of valuation disputes involving private companies, partnership interests, carried interests and closely held real estate – an administrative undertaking that no state tax authority has the capacity or infrastructure to manage.
Could the Legislature later lower the $1 billion threshold to apply to more people?
This is a legitimate concern. Section 50310 of the initiative allows the Legislature to amend the Act by a two-thirds vote without returning to voters, provided the amendment “furthers the purposes” of the initiative. Critics argue this language is broad enough to allow threshold reductions. That said, the administrative and constitutional barriers to extending a net worth tax to lower thresholds are severe. Ultimately, the problems that make this tax difficult at $1 billion become worse, not better, at lower levels. The more likely risk for sub-billionaire clients is income-based surcharges, not wealth tax expansion.
Leslie Geller is a wealth strategist at Capital Group with 19 years of related industry experience (as of 12/31/2025). She received an LLM in taxation from New York University School of Law, a juris doctor from Boston College Law School and a bachelor’s degree from Washington and Lee University.
Ingrid Parl is an investment director with 15 years of investment industry experience (as of 12/31/2025). She holds a bachelor's degree in political science and psychology from Wesleyan University.
Anne Gifford Ewing is a senior trust and estate specialist with Capital Group Private Client Services. Anne spent more than a decade in private legal practice at Gifford, Dearing & Abernathy, LLP in Los Angeles, during which time she was recognized as a Certified Specialist in Estate Planning, Trust & Probate Law by the California Board of Legal Specialization of the State Bar of California.