Democratic wave keeps US wealth taxes on the agenda despite California setback

Proposition 40 billionaire tax set to be defeated in a rare victory for mega-donors in the US midterms

California appears on track to reject the first US wealth tax but the Democrats' storming national victory, driven in part by voter anger over plutocratic politics, means the idea of new levies on billionaires in America remains in play.

The ballot measure to impose a first-of-its-kind 5 per cent levy on the state's billionaires was on course for defeat as counting continued on Wednesday evening, after the likes of Google's co-founder Sergey Brin and venture capitalist Vinod Khosla marshalled hundreds of millions of dollars to oppose the tax.

However, the demise of Proposition 40 could mark the beginning of the electoral battle over wealth taxes in the US, according to political strategists and experts, as emboldened Democrats won races across the country that largely served as a stinging rebuke to the influence of billionaires in politics.

"People hate billionaires without knowing why. They think billionaires should be taxed," said David Crane, lecturer at Stanford University, who predicted wealth tax proposals would appear in other states.

The Nobel laureate Joseph Stiglitz added it was "only a matter of time" before a similar initiative took hold.

"Significant changes rarely move in a straight line: in 1895 the US Supreme Court struck down the federal income tax, and 18 years later it was written into the constitution," the Columbia University professor said.

America's wealthiest citizens have cozied up to Donald Trump during his second term. But their alliance became a liability for Republicans as voters vented their anger at the yawning gap between the rich and typical households grappling with the high cost of living.

In races across the US, Democrats took aim at the wealthy. Abdul El-Sayed, one of the party's leading progressive voices, won his Senate race in Michigan on Tuesday night after advocating for a wealth tax throughout the campaign.

Politicians need to take on "the corporations and the billionaires, special interests who've rigged the system against us for far too long", he said in his victory address in Detroit.

James Talarico said his win in Texas's Senate race, the first for a Democrat in a generation, had "sent a message to every billionaire mega-donor [and] every trillionaire mega-donor". Elon Musk spent hundreds of millions backing Talarico's Republican rival.

The likely defeat of California's wealth tax would be a rare victory for billionaire donors in the US midterms.

More than 55 per cent of voters opposed the measure, returns counted through Wednesday showed, after governor Gavin Newsom and Democrat Xavier Becerra, who won the race to replace Newsom, also campaigned against the levy.

That lead could be winnowed down in the days ahead, given the state's heavy reliance on mail-in ballots. The Associated Press has not called the tax race and it will be weeks before the California secretary of state certifies results. A separate measure designed to invalidate the billionaire levy was also poised to pass.

Billionaires marshalled more than $300mn to kill the bill, with Brin, fellow Google co-founder Eric Schmidt, Khosla and Sequoia Capital's Michael Moritz all donating millions of dollars to defeat the initiative.

Voters across California said they had been inundated with texts and phone calls, as well as advertising across social media and YouTube in the lead-up to the election.

Cristobal Young, sociology professor at Cornell University, said: "For the very small number of people who were going to be affected by this, the actual tax bills would have been astronomical. These would have been some of the largest tax bills that have ever been sent to anyone in the history of the world."

The campaign's failure partly reflected mis-steps by the healthcare workers' union SEIU-UHW, which championed the tax, according to Stanford's Crane.

The union structured the measure to funnel tax proceeds to healthcare spending, leading groups such as California's largest teachers' union to oppose the levy.

Newsom and Becerra meanwhile argued the one-off measure was not a good long-term policy, with the outgoing governor warning it would drive innovation and wealth out of the state that is home to Silicon Valley.

Some voters were also convinced the billionaire tax would open the door to broader levies on wealth. "It sounds good, a billionaire tax, but the opposition said it doesn't stop there," said Darran Matthews, a 56-year-old events planner in predominantly middle-class Glendale, who voted against the measure.

Several billionaires departed the state ahead of the vote to avoid the potential tax, including Lynsi Snyder, who inherited the famous California burger chain In-N-Out.

One of the fast-food chain's employees told the FT she backed the wealth tax. Voting in working-class East Los Angeles on Tuesday, she said she delayed the start of nursing school by a year because of financial aid cuts that stemmed from Trump's flagship Big Beautiful Bill.

"It's not about politics. It's about humanity and morals and caring about the people and less about taxes," she said.