‘Trojan horse’: California’s top 1% pay nearly half the state’s income taxes. Prop 40 opponents warn the billionaire tax could reach everyone else

California’s revenue is notoriously top heavy, leaving state coffers vulnerable to boom-and-bust cycles as the wealthiest residents see their incomes rise and fall with the stock market.

In recent years, the top 1% of California households have accounted for about 40%-50% of all personal income tax revenue, according to the conservative Hoover Institution .

In fact, the top 1% paid more than $60 billion in California personal income taxes in 2021, when the stock market soared.

The flip side is that the state suffers crippling deficits when the market tanks, like during the Great Financial Crisis.

Now, California’s Proposition 40 seeks to tax billionaires’ wealth in addition to their incomes, and opponents have launched a full-court press, calling it a “Trojan horse” that will eventually come for all Californians.

The ballot initiative calls for residents worth more than $1 billion to pay a one-time tax equivalent to 5% of their assets.

The union pushing Prop 40, the Service Employees International Union-United Healthcare Workers West, has said the wealth tax could raise $100 billion in revenue and help offset federal cuts to health spending.

Prop 40 includes a provision that says the state legislature could modify it with a two-thirds vote—but only “if the statute is consistent with and furthers the purposes of the 2026 Billionaire Tax Act.” Prop 40 backers insist it’s only aimed at billionaires.

Still, any changes would be up to state lawmakers, though courts would also weigh in on any attempts to stretch the scope to all taxpayers or to extend it beyond a one-time levy.

According to CalMatters , there have been numerous instances in which the state legislature has amended other ballot measures after they have passed.

There have also been times when the courts have upheld the changes and when they have struck them down.

In 1995, the state Supreme Court ruled lawmakers can make changes if they advance voters’ original intent “by any reasonable construction,” the report said.

But in 2019, the Third District Court of Appeal rejected an attempt to amend the Political Reform Act, saying it “directly conflicts with a primary purpose” of the law.

Of course, there’s nothing that would prevent another ballot initiative in the future from taxing wealth to fund other spending priorities.