California voters have rejected a proposed one-time tax on billionaires, dealing a setback to a union-backed effort to raise money for health care and underscoring divisions among Democrats over how to fund public services.

Proposition 40 would have imposed a 5% wealth tax on billionaires, making California the first state in the nation to adopt such a levy. The race remained close for days after Election Day, with opponents holding a narrow lead. Seven days after the vote, major California news outlets projected that the measure had failed.

The result surprised some observers in a reliably Democratic state, particularly after Democrats swept both houses of Congress. But the proposal did not command unified support within the party.

Gov. Gavin Newsom and Gov.-elect Xavier Becerra opposed it, as did Democratic-leaning organizations including the California Teachers Association and Planned Parenthood. Alongside Republicans, opponents warned that the tax could encourage wealthy residents and entrepreneurs to leave, depriving California of income-tax revenue over time.

Those concerns came against a backdrop of corporate relocations. Oracle moved its headquarters from Silicon Valley to Austin in 2020, and Tesla followed with a move from Palo Alto to Austin in 2021. Chevron announced in 2024 that it would move its headquarters from San Ramon to Houston. Company leaders have cited factors including taxes, regulation and the cost of doing business in connection with such moves.

The proposed use of the revenue also drew scrutiny. The Service Employees International Union, which spearheaded Proposition 40, argued that the money was needed to respond to federal health care cuts in the One Big Beautiful Bill. The union warned that low-income Californians who depend on Medi-Cal could lose coverage and that hospitals might cut services or close.

But nearly all the revenue would have gone to the health care industry, prompting skepticism among some Democrats about a tax devoted largely to one sector.

Voters also considered two measures intended to constrain future wealth-tax proposals. Proposition 41, which would have required pre-election audits for initiatives proposing special taxes and periodic state audits of their programs, failed. Proposition 42, which would prohibit taxes on individually owned assets enacted on or after Jan. 1, 2026, remained undecided at publication, with support at 51.6%.

The defeat may not end the debate. The authors of Proposition 40 have said they plan to return a wealth-tax proposal to the ballot, potentially reopening the question of how California should finance health care—and whether its wealthiest residents should bear more of the cost.