Proposition 40 — the “billionaire tax” — is struggling in the polls. Whether it passes or not, the real question is why it ever came up and gained considerable support. 

The reason is clear: California’s neo-feudal system is not working for most residents, even as tech oligarchs achieve unprecedented wealth. 

Call this the first sign of an incipient peasant revolt.

For much of the past quarter-century, California’s economy has been sustained by tech stocks. These kept the state’s GDP growing and tax revenues flowing, even as other sectors like manufacturing, energy and construction declined, with many firms leaving the state.

Now the tech-driven sugar high seems destined to end, amid growing concerns about the insane valuations of AI companies.

It’s becoming clear to a growing array of skeptics AI may not generate the income to offset their huge expenses. 

That could prove disastrous for California, which relies on “crazy money” — notably, capital gains tax revenues — to pay off the core political constituencies: government workers, Sacramento-funded nonprofits and the welfare class.

Over the past six years, tech money allowed Gavin Newsom to boost the state budget by two-fifths, in nominal terms. Fraud, waste and simple incompetence were all tolerated in Sacramento as long as the top 1% of taxpayers continued to generate roughly 40% of the state’s personal income tax revenue. 

All of this spending, sadly, has not made life better for most Californians. Instead, the California system produces not progressive utopia, but something remarkably feudal. 

As the state’s ranks of billionaires have soared by 76 since 2022, far more than Florida, New York or Texas, the state also suffers the nation’s highest cost-adjusted poverty, among the highest youth unemployment and one of the widest gaps between the fading middle class and the elites. 

Silicon Valley, the epicenter of the California system, is now one of the most unequal places in North America, with the wealthiest ten percent controlling 75% of the wealth, while the bottom half of the population owns less than 1%. 

This gross inequality is what has made Proposition 40 attractive to many. It may still lose, due to a record breaking $350 million campaign financed by the oligarchs.

The sad reality is that without windfall tech profits, the state — whose overall economy is mediocre at best — faces a looming budget crisis. 

We have seen this before: California, notes analyst Michael Kelly, needs “a fiscal memory” about what tech downturns can do to the state.

In the dot-com crash in 2000-2001, state income taxes plummeted and capital gains revenue fell by two-thirds, creating a massive shortfall of over $20 billion by 2002. Even the relatively small tech corrections in 2022–23 and 2023–24 brought revenues in $65 billion below estimates.    

To be sure, a bursting AI bubble would hurt investors around the country. But unlike California, places like Texas, Florida and Nevada have economies that also include growth in energy, construction and manufacturing. 

Worse yet, the Legislative Analyst’s Office has already projected structural budget deficits ranging from $22 billion to $35 billion annually over the next several years, even before a possible billionaire exodus.  

Yet do not expect the legislature, with a far weaker governor, to trim its spending. Instead, led by the rising socialist left, it will continue to focus on “the rich” — not just with wealth taxes, but with any other fee that brings in cash to fund our one-party state.

Attacking the tech moguls turns out to be good politics. For one thing, as they log record profits, many are laying off employees. Just this week, Microsoft offered buyouts to 60,000 workers, a quarter of its global workforce. 

The percentage of Americans expressing “a great deal” or even “quite a lot” of confidence in big tech has plummeted from 32% in 2020 to 20% this year.

Even if Proposition 40 fails, other measures to expropriate wealth and success will be cooked up by the Democrats’ two-thirds legislative majority. But they won’t stop with billionaires — who are hard to beat — and will instead target the state’s large upper middle class, many of them owners of successful small businesses. 

The climate for expropriation may become far more positive, particularly as younger voters, many of them losing any chance of buying a home or building a successful business, come to dominate the state’s electorate. In recent polling from the Public Policy Institute of California, 75% of surveyed young adults ages 18–34 say they plan to vote yes on the “billionaire tax.” This group of Californians makes up about a quarter of voters statewide. 

Rather than an idea without a future, Proposition 40 may end up being the first salvo in a relentless campaign to expropriate the wealth of anyone deemed affluent — and that ultimately means many of you.

Joel Kotkin is presidential fellow in urban futures at Chapman University and senior research fellow at the Civitas Institute, University of Texas at Austin.

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