A technology mecca, California has more billionaires than any other state — a few hundred, by some estimates. Nearly half its personal income tax revenue, a financial backbone in the nearly $350 billion budget, comes from the top 1% of earners.

A large health care union is attempting to place a proposal before voters in November that would impose a one-time 5% tax on the assets of billionaires — including stocks, art, businesses, collectibles and intellectual property — to backfill federal funding cuts to health services for lower-income people that were signed by President Donald Trump last year.

In a state with a vast gap between rich and poor, the plan has resulted in a tangle of competing interests at a time when both Democrats and Republicans are struggling to respond to economic anxiety driven by rising costs ahead of this year’s midterm elections.

An online war of words has tech leaders pondering a hollowing out of Silicon Valley, and millions of dollars are flowing to political committees engaged in the fight. That includes $3 million from billionaire Peter Thiel, a founder of PayPal, to a committee tied to a business group opposing the tax.

However it’s not clear if the proposal will make the ballot, with more than 870,000 petition signatures required for it to qualify.

Threatened exodus

Although the tax would affect only a minuscule slice of California’s roughly 39 million residents, it would siphon money from an immense pool of wealth. If would apply retroactively to billionaires living in the state as of Jan. 1.

At least 25 billionaires listed among Forbes magazine’s 2025 rankings of the world’s 500 wealthiest people either lived in California or had some significant ties to the state, based on a review by The Associated Press. But determining whether they were full-time residents or just frequent visitors could turn into a matter of dispute, since many of them own property elsewhere.

“You are really playing with fire with this one,” said Aaron Levie, CEO of the publicly traded Silicon Valley company Box. He fears that the proposed tax would drive entrepreneurs to look elsewhere to run their companies and launch startups.

Even liberal-leaning tech pioneers would “find it absurd just on pure economic and structural grounds, even if they might agree that the cause itself is very worthy,” said Levie, who is not a billionaire.

Governor worries about a competitive disadvantage

Newsom has long opposed state-level wealth taxes, believing such levies would be disadvantageous for the world’s fourth-largest economy. At a time when California is strapped for cash and he is considering a 2028 presidential run, he is trying to block the proposal before it reaches the ballot.

Analysts say an exodus of billionaires could mean a loss of hundreds of millions of tax dollars.

“It’s one of the reasons why Newsom’s path to the Democratic nomination is not going to be an easy one,” Claremont McKenna College political scientist Jack Pitney said. “He’s already facing a (budget) deficit the size of which is uncertain … and in the years to come, a billionaires tax that could backfire badly.”

Democrats divided on the issue

The proposal has created a deep rift between Newsom and prominent members of his party’s progressive wing, including Vermont Sen. Bernie Sanders, who endorsed it and said it should be a template for other states.

“Our nation will not thrive when so few have so much while so many have so little,” Sanders said on the social platform X.

Another supporter, and a potential 2028 Newsom rival, is Democratic Rep. Ro Khanna, who mocked billionaires for threatening to flee over a tax intended to provide health care for lower-income people.

The measure’s lead proponent, the Service Employees International Union, sees the threat of an exodus as exaggerated.

The tax is a “workable response to a crisis created by Congress,” Suzanne Jimenez, chief of staff of SEIU-United Healthcare Workers West, said in a statement. She added that it would “keep emergency rooms open, hospitals staffed and health care systems functioning.”

The California Business Roundtable, meanwhile, is leading an effort to defeat the measure, saying it would “undermine our economy, decimate the state budget, drive investment out of the state and ultimately make everyday life more expensive for working families.”

A business climate known for heavy regulation and steep costs

Fleeing California because of its high cost of living and reputation for stringent regulations started to gather momentum well before the proposed wealth tax began circulating last year.

Elon Musk, the world’s wealthiest man with a $724 billion fortune, bought a home in Texas and moved his electric automaker Tesla to Austin several years ago.

The financial threat posed by the proposed tax apparently is pushing even more of Silicon Valley’s renowned pioneers to curtail their exposure to California and its liberal policies, including Google co-founders Larry Page and Sergey Brin, who moved to the state during the mid-1990s for graduate study at Stanford University.

Page and Brin stepped away from their executive roles years ago but remain the largest shareholders in Google parent company Alphabet, with stakes that account for most of their combined fortunes of $530 billion, according to Forbes.

But both men have begun moving more of their assets to Florida, according to multiple reports. Google, which has been based in Mountain View for the past quarter century, did not respond to an AP inquiry about their recent moves.

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Liedtke reported from San Ramon, California. Associated Press writer Sophie Austin in Sacramento, California, contributed.