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In the lead-up to the November midterms, the Democratic Socialists of America (DSA) put its support behind California’s Proposition 40, a measure that would impose a one-time 5% tax on billionaires in the state.
Although the secretary of state’s election results show it on the path to defeat as of Wednesday afternoon, the DSA’s support for the policy has created a flashpoint for larger discussions about socialism’s redistributive aims — and the capital flight critics say could follow.
“In their mind, every tax they do is some attempt to get money from people who create wealth and move it to the state,” Richard Stern, an economics scholar with Advancing American Freedom (AAF), said in an interview with Fox News Digital.
The DSA’s stance on Proposition 40 has also brought it into conflict with other Democratic figures, including Gov. Gavin Newsom, who opposed it.
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California Gov. Gavin Newsom, left, and a group of DSA supporters holding a banner. (Charly Triballeau/AFP via Getty Images; Spencer Platt/Getty Images)
The proposition would have applied a 5% tax on assets like businesses, securities, art, collectibles and intellectual property while excluding select pensions, real estate and retirement accounts.
To prevent billionaires from simply leaving the state, Proposition 40 was designed to retroactively apply to billionaires who were residents of California on Jan. 1, 2026.
On the website for its California chapter, the group offered a PowerPoint slideshow supporters could use to argue its merits.
“We have the money in California to pay for the quality schools and healthcare that we need. It just needs to be transferred from the wrong pockets to the right ones. We can do that by taxing the rich,” the slideshow reads.
The DSA argued the policy would help cover up to a projected $100 billion shortfall in federal funding for the state’s Medi-Cal program that provides health insurance for low-income individuals, seniors and people with disabilities. The proposition also outlined that 90% of the generated revenue would go to healthcare while the remaining 10% would be set aside for education, food assistance and administration of the tax.
As part of its argument in favor of the policy, the DSA framed it as a scaled-up version of something that already exists: a progressive tax — a kind of tax that scales relative to income.
“It calls for a temporary 5% wealth tax on just 250 Californians — the very richest people in the state — who together own $2 trillion in wealth,” its materials explain.
“Let’s be clear: if the Billionaire Tax passes, none of the billionaires will actually lose money. They have been averaging a growth rate of 7 or 8 percent per year in their wealth. Thus, a 5% hit doesn’t even cut into what they have; it just slightly slows down the growth of that wealth.”
But to experts like Stern, the AAF economist, the policy reflects a fundamental misunderstanding of wealth.
“The left looks at a billionaire, and they assume that they’re sitting on $10 billion, $100 billion in cash. I hate to break it to them: There’s no cash,” Stern said.
“They have no idea that we’re talking about a trillion-dollar company, we’re talking about a trillion dollars’ worth of factories and warehouses and delivery trucks and machinery,” he added.
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California Democratic Gov. Gavin Newsom has come out strongly against a proposed state billionaire tax while pushing a similar national tax. (Carlin Stiehl/Los Angeles Times via Getty Images)
Notably, Gov. Gavin Newsom has said he is opposed to the measure, arguing it would put California at a competitive disadvantage.
In an interview with Fox News Digital, Newsom cited opposition from a number of different groups.
“The firefighters opposed it, the teachers opposed it, Planned Parenthood opposed it — the vast majority of labor opposes it. I think the majority of Californians oppose it. So, we all have our reasons why,” Newsom said ahead of the election.
“I don’t think it’s a good idea to do [it] at a state level. It’s a badly written initiative. It focuses just on one part of the state’s budget. It’s one-time money and the impact is already being felt. People have left the state,” Newsom said.
Instead, Newsom called on voters to adopt a poison pill countermeasure. Proposition 42 was designed to prohibit new state taxes on personal property and restrict certain retroactive taxes. That measure looks to be on track to succeed.
Even so, Newsom noted that his views on a 5% tax might change if implemented at the federal level.
“Looking at that from a national prism, very different conversation than a state-by-state prism. That’s been the debate in California. I think the majority of Californians see that distinction even though they absolutely believe that we need a new tax bracket in this country,” Newsom said.
Stern noted that Newsom’s openness to considering such a policy nationally comes with many of the same difficulties, but on an international scale.
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Berkeley with San Francisco in the background (Neal Wong/Getty Images)
“You can more easily leave California, but you could give up American citizenship and move abroad,” Stern said.
“[It] gets back to the old half-joke about communism and the wall in Berlin, which is, as Reagan said, they build walls that keep people in where normally we build walls to keep people out.”
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When asked what distinguishes Proposition 40 from a simple tax increase, Stern pointed back to the policy’s implications for businesses — in his view, the main source of most billionaires’ wealth.
“We’re taking the means of production out of the hands of people that built those businesses, that manage those businesses, and giving them to Bernie Sanders and AOC and politicians to run them,” Stern said, referring to two of the country’s most well-known congressional figures who have received backing from the DSA in the past.
“That’s socialism,” Stern said.