Top Democrats battle over California’s proposed billionaire tax

Sen. Bernie Sanders and Rep. Ro Khanna are heading to California to rally Saturday in support of an initiative that would place a one-time, 5% tax on the wealth of billionaires in the state.

Their efforts to barnstorm the state come as early voting begins, and millions of dollars have been spent to kill the initiative.

The measure would affect roughly 200 of California's billionaires, with the money going to cover federal Medi-Cal cuts. Gov. Gavin Newsom has become its most prominent opponent, arguing that the tax could be dodged by billionaires who could leave the state for another.

Prior to arriving in San Francisco, Khanna told ABC News that he and Newsom are "polar opposites" on the issue. Both have openly discussed that they are weighing a presidential bid in 2028.

“He [Newsom] doesn't want to offend some of the billionaires who he wants to finance his campaigns, and that's the question: Are we going to be a party for the working class? Are we going to be beholden to our donors?” Khanna said.

The congressman challenged Newsom to a debate, proposing holding town halls and talking to voters about this issue.

"I'm happy to debate him on this any time in the state," he said.

Asked by reporters earlier this week about Sanders' visit, Newsom said he has "enormous respect" for the senator, but on this specific issue, "we fundamentally disagree." 

In a statement to ABC News, a spokesperson for Newsom said, "The Governor supports a national tax on billionaires and is proud to stand with teachers, firefighters, reproductive health clinics, and others in opposing this poorly written state measure that will harm California.”

Newsom has shared a counterproposal: a national billionaire tax focused on loans taken against assets.

Tech investors have pushed back hard on the measure. Vinod Khosla warned that the state's top wealth creators will leave, and Mark Cuban told Khanna he doesn't understand business.

Khanna pointed to Nvidia CEO Jensen Huang.

"Someone more successful than both of them, Jensen, is perfectly fine paying the tax, and he's driving the economy more than either of them are these days," Khanna said.

Asked about whether he was concerned about the proposed tax by Bloomberg Television, Huang said, "I've got to tell you, I have not even thought about it once. We chose to live in Silicon Valley, and whatever taxes they would like to apply, so be it. I'm perfectly fine with it."

But billionaires have also been opening their wallets to fight the measure. Building a Better California, the flagship organization fighting the measure, has raised over $252 million, mostly from billionaires, according to public financial records. Top contributors include Google co-founder Sergey Brin (who has given $102 million), venture capitalist John Doerr (who has given $30 million) and former Google CEO Eric Schmidt (who has given $27 million).

Skeptics of Proposition 40, the official name for the billionaire tax ballot measure, say that the measure could ultimately reduce tax revenue by motivating wealthy Californians to relocate and take their wealth with them. According to an analysis from California’s nonpartisan Legislative Analyst’s Office (LAO), the tax could generate revenues in the tens of millions in the short term but cause decreases in income tax revenue in the future.

No On Prop 40, a group funded by Building a Better California, is running several digital ads. Some of the ads say that the billionaire tax would lead to a decline in tax revenue, while others claim that the measure will lead to the state legislature approving wealth taxes on non-billionaires.

No on Prop 40’s website lists dozens of groups that are members of its “coalition” opposed to the tax. Among them is the California Farm Bureau.

Steven Fenaroli, a spokesperson for the group, says he thinks the billionaire tax will end up becoming “just another tax on farmers and ranchers.”

“When my members are looking at Prop 40, they see this slippery slope that we seem to have in California,” Fenaroli told ABC News.

David Lesperance, a tax lawyer who has helped several billionaires relocate from California, said, "My multi-billionaire clients… said, 'We need to get out of here. That's over a trillion dollars that have left."

Yes on 40, the main group backing the measure, has received roughly $32.4 million, the vast majority from Service Employees International Union-United Healthcare Workers West (SEIU-UHW) and affiliated organizations.

Suzanne Jimenez, SEIU-UHW chief of staff, said the campaign expected to be heavily outspent.

"It was part of our plan," Jimenez told ABC News. "I think the spending is actually counteracting what they're intending to do, and it's actually helping us in our conversations with voters."

Several labor organizations, including California Professional Firefighters and California Teachers Association, are against the tax. When asked on a press call why labor groups would oppose a tax on billionaires, Sanders pointed to the media pumped out by the billionaire-backed anti-tax campaign.

“In America today, is it possible for a ballot item to win when it is being opposed by a handful of billionaires who are spending over $200 million?” Sanders asked. “That is the question. Do you still have a democracy in this country, or will billionaires rule?”

Khanna said that the fight over taxing the ultra-wealthy is already playing out in races across the country this year, "and you're going to see that fight explode in 2028."

"Will it hurt me in fundraising? Yes. Will there be powerful interests with big tech money and AIPAC money against me? Yes. Will it be enough? We'll see," he said.

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