The race defining California’s 2026 statewide election is Proposition 40, also known as the “Billionaire Tax.”

The proposed tax will levy a one-time, 5% tax on the accumulated wealth of any billionaire living in California, with the money earmarked for healthcare and education. The tax was proposed by the Service Employees International Union-United Healthcare Workers West in response to federal funding cuts in President Donald Trump’s One Big Beautiful Bill Act.

Prop 40 revenue will go toward preserving programs like Medi-Cal and CalFresh. Petitioners collected nearly one million valid signatures to put the proposition on the November ballot.

[Related: Petitioners push billionaire tax, other initiatives for California ballot]

Prop 40’s goals are admirable, but the measure contains structural flaws that would hurt California and UC students long-term if passed.

Supporters of Prop 40 estimate it will raise $100 billion in revenue, said Emmanuel Saez, an economics professor at UC Berkeley. But this figure is heavily contested.

Benjamin Jaros, an economist at Stanford’s Hoover Institution, said after accounting for billionaire flight and other deductions, the revenue Prop 40 will likely net is between $35 and $46 billion.

The gap in estimates is due in part to multiple high-profile billionaire departures that removed $536 billion from the state, which were not included in proponents’ calculations, according to a 2026 Hoover Institution study co-authored by Jaros. Jaros said he estimated a stronger behavioral response based on analysis of billionaire avoidance of European wealth taxes.

Billionaire flight – billionaires relocating because of the tax – is also troubling for California’s long-term finances.

Departed billionaires mean a significant loss of income tax revenue in future years, with research showing that the average outcome for the state long-term is a net loss of $24.7 billion, Jaros said. That estimate is likely conservative, as it did not consider other effects like a decrease in business activity or loss of income taxes on salaries billionaires support, he added.

California is an exceptional economic ecosystem – it’s the reason billionaires stay despite the state’s notoriously high income taxes. Still, if surprise multi-billion tax bills can be sprung on them at any moment via proposition, there comes a point at which rational billionaires will move business operations – and the taxes generated by them – to business-friendlier states like Florida or Texas.

Lower state revenues could mean, among other things, less University of California funding. This could result in aggressive tuition hikes, less money available for Cal Grants, less research funding and a UC that struggles to support its students.

The retroactive element of Prop 40 is also contentious. The tax applies to billionaires who were living within the state Jan. 1, 2026, despite the outcome of the proposition becoming final in November 2026.

Supporters see this as an effective mechanism against billionaire tax avoidance.

It would have been difficult to sever residency from California in the short time between when the tax was announced, in November 2025, and when residents were locked in, January 2026, Saez said.

However, the retroactive mechanism invites legal challenges. Billionaires whose departures are contested, including Mark Zuckerberg’s, will almost certainly end up in court.

“Their (billionaires’) calculation could very well be this: ‘I’m going to challenge this in court, and I’m going to win,’” said Wayne Winegarden, a Pacific Research Institute senior fellow.

Given the immense resources billionaires possess, California could spend years in court fighting over Prop 40 revenue. Consequently, revenue from the proposition wouldn’t be able to backfill the immediate healthcare funding shortages caused by federal funding cuts – its original purpose.

The one-time nature of the billionaire tax raises additional concerns about the stability of state budgeting.

“You’re going to end up with a permanent government program and a temporary tax,” Winegarden said.

Even if Prop 40 raises enough to backfill Trump’s funding cuts to healthcare – which is not guaranteed – it’s unclear how a ballooning Medi-Cal budget will be funded going forward. Further, if successful, it could signal to a federal government looking for ways to reduce its own massive budget deficit that California can survive with less federal funding.

Billionaires should not be defended. However, it’s not billionaires who will feel this hit the most. Prop 40 will leave California’s residents – including UC students – worse off in the long term. That is an unacceptable outcome.

We cannot let Prop 40 put California at risk.