Californians will vote in the November 2026 midterm elections on national, state and local issues. As a consequence, the ballot is both long and complicated. My ballot, for example, includes 1 seat in the U.S. House of Representatives, 14 State Propositions, 8 State offices, including Governor, 1 State regional officer, 1 State Assembly seat, 14 Judges, 3 Local School Board members, 3 County officers, and 3 County Propositions. The results of the election will be watched carefully in hopes of ascertaining where California politics might be heading. Despite current perceptions of the radical nature of California politics, the state has consistently fluctuated between Democratic and Republican control: since 1943 of the 11 governors, 6 have been Republicans, and it was only 23 years ago (2003) that Californians impeached a Democratic governor (Gray Davis) and elected a Republican (Arnold Schwarzenegger, who also won re-election) to replace him.
Two topics have drawn significant attention in this midterm election and may serve as potential indicators of the future direction of state politics. First is the state’s relation with the high technology sector and secondly its potential impact on propelling Governor Gavin Newsom’s presidential ambitions. Voters will not directly vote on these two topics but the result of their votes on three voter-initiated Propositions (40, 41 and 42) as well as the general tenor of the overall voting will merit significant study.
State Politics and Tech Titans
California has historically been an ideal location for many entrepreneurs because of a combination of natural resource wealth (timber, gold, oil, harbors), high intellectual capital and size and dynamism of its economy (if California were a nation, its economy would be the fourth largest in the world), lifestyle attractions (weather, natural beauty, art and music) and cultural diversity. Political leadership welcomed the tax base, philanthropy and social opportunities provided by the agricultural, industrial, manufacturing and entertainment titans who preceded the tech era. As the tech sector developed, its entrepreneurs were also attracted to California, despite the state’s high income tax rates compared to those in other states.
It was only natural that economic, social and political bonds developed to create various state-business alliances. As the tech sector grew richer their influence also grew, but the state also benefited due especially to its highest-in-the-nation state income and capital gains taxes and among the highest corporate tax rate. For example, quarterly tax receipts from a sudden boom in the stock market virtually wiped out the state’s projected deficit in 2024.
The state-tech relationship in California has become strained since 2016 when California politics saw an increase in labor union activism against the potential impact of AI on jobs, growing concern about crypto and the size of the industry’s most important companies. As the relationship grew tense, other state governments offered generous relocation packages (subsidies, fewer regulations, and lower taxes), the culture wars erupted, a meritocratic philosophy based on wealth accumulation became more public among some tech leaders just as the dramatic rise in the concentration of wealth across the nation became a national concern, and California’s periodic high budget deficits showed no sign of coming to an end.
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Of course, the tech sector is not a unified entity and although there have been some high profile relocations out of California recently, its tech sector remains the most dynamic in the nation: in the first eight months of 2026 more than 4,000 startups in California received a total of $366 billion in venture capital, which was more than that of the other 49 states combined (New York was second with $27 billion): this when Proposition 40 aimed at retroactive taxing of assets was well underway.
The Wealth Tax Controversy – State Propositions 40,41 and 42
The California system of voter-initiated Propositions (referenda or initiative measures that are directly submitted to the electorate) has significant impacts on the state budget, taxation policies and social, health and education parameters within the state. This political reality creates a complicated situation because the exploitation of natural resources that could generate royalties for the state is severely constrained, Democratic control of the state legislature favors the expansion of state spending to address a growing list of human needs and rights, and state taxation is already high relative to other states. As a result, the state periodically overspends, generating significant budget deficits and confronts the legal requirement that the budget must be balanced. Ideally, increased growth of the economy, the sale of bonds and an increase in fees would permit the state to finance its way out of the deficit. But when that combination is insufficient the state must cut spending and citizens lose jobs, access to services, etc.
Alongside this California dynamic is the dramatic rise in the concentration of wealth in the United States, largely fueled by federal rather than state policies. (Other states considering different versions of wealth tax are Washington, Rhode Island and New York but only California’s limits it to billionaires and to a one-time tax). California is the state with the most billionaires, approximately 200, and half of those are associated with the tech sector; the tech elite are estimated to account for 80% of the total billionaire wealth in the state.
Clearly, the tech sector has enormous wealth and could, without economic pain, increase its support of the state budget. Prop 40 is based on this reality, but generates significant misgivings even among those who support the general idea of increasing taxes on the extremely wealthy. Prop 40 would attempt to create a one-time 5% tax, payable over a few years, on the total accumulated wealth (which includes property, art collections and other assets) and direct 90% of the tax to state-funded health care programs (which target the poorer citizens) and 10% for health and nutrition programs in public schools. Proponents claim this would raise up to $100 billion dollars, although the state Legislative Analyst office puts the figure in the tens of billions of dollars, with a potential loss of $1 billion/year to general tax revenue as billionaires relocate their assets.
Within the tech sector responses to Prop 40 the factors have been mixed, with some (e.g., NVIDIA and Facebook co-founders) supporting the idea of increasing taxes on the wealthy and others denouncing the concept (e.g., Google and Meta co-founders, though Meta itself has offered the founder incentives to remain in California). Google co-founder Sergey Brin financed the gathering of signatures for Prop 41 and 42 whose provisions would block wealth taxes if they received more votes than Prop 40.
Among Democrats, liberals and others who support the idea of increasing taxes on the wealthy but not Prop 40 (these include many leading Democratic politicians, labor unions, professional associations, NGOs), three concerns stand out. As a one-time tax it will do nothing to solve the health care problem in California, which requires sustainable long-term funding. In addition, its benefits apply only to one (health care/public schools) of the many worthwhile and popular programs funded by the state – will these others pursue similar measures and what would be the implications for public policy? And finally, taxing unrealized assets has been a taboo in California – once that line has been crossed does it become easier to tax the assets of residents whose wealth falls below $1 billion? How much lower? This group looks instead to tax reform at the state and federal levels more in line with what Joe Biden proposed in the 2020 presidential election – raise income tax rates on annual earnings over $400,000, increase the corporate tax rate, and dramatically reduce the federal estate tax exemption threshold.
Newsom’s presidential ambitions
California Governor Gavin Newsom (first elected in 2018 and reelected in 2022) has stated publicly that he will decide whether to run in the Democratic presidential primaries next year after the midterm elections. Like other potential candidates, Newsom has been laying the groundwork for a presidential campaign through public appearances and financial contributions through their Leadership Political Action Committees (PAC) in support of Democratic candidates running for key offices (Senate, House and Governorships) in other states. Such measures increase one’s public recognition as well as build alliances with politicians and donors. In Newsom’s case, these national efforts also provide an opportunity to convince voters outside of California that he is not a stereotypical “radical” from California. He has positioned himself as willing to actively and publicly oppose Trump and his administration but as a pragmatic progressive.
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If California voters pass significant and numerous “radical” measures, Newsom’s state reinforces its outlier status, further saddling him with a reputation as a strongly progressive political figure. If Newsom counters that he attempted to dissuade ‘inappropriate’ choices and failed, he appears as a weak leader to centrist voters and as an ‘elitist’ to the left wing of the Democratic party.
This political reality increases the importance of Proposition 40 for Newsom’s political ambitions. Both as an individual American concerned about the vast and growing concentration of wealth and as a progressive, he favors the sentiment behind Prop 40 – that super-wealthy people need to share more of their wealth with the nation. But as a pragmatic politician – which means considering potential consequences and how to implement it – he understands the limitations of Prop 40. Consequently, as Governor he has advised Californians and their elected officials that the overall tax structure of the state needs to be reformed. And he has called for tax reform on income in California and at the federal level to tax higher levels of income at higher rates. This year he proposed a minimum tax on anyone with a net worth above $100 million and making it illegal to borrow against stock portfolios to fund luxury lifestyles tax free.
How the wealth issue plays out in California will be a significant factor in both the future of politics in California and in Newsom’s political future.