California's Top 1% Pay Nearly Half the State's Income Taxes, per Fortune

Half the income tax, from 1% of filers

California's top 1% pay nearly half the state's income taxes, per Fortune, and that dependence is now at the center of the fight over the state's proposed billionaire wealth tax.

In recent years, the top 1% of California households have accounted for about 40% to 50% of all personal income tax revenue, according to figures from the Hoover Institution. In 2021, when the stock market soared, the top 1% paid more than $60 billion in California personal income taxes. The personal income tax is the state's main engine, bringing in roughly two-thirds of general fund revenue, the pot that pays for schools, universities, prisons, and Medi-Cal.

A budget chained to the stock market

The concentration exists because rich Californians earn much of their income as capital gains, from selling stocks, real estate, and business stakes. California taxes capital gains as ordinary income at rates that top out above 13%, the highest state rate in the country. When tech valuations are soaring, money pours into Sacramento. When the market drops, it evaporates almost overnight, which is why the state can look flush one year and face a structural deficit the next. The nonpartisan Legislative Analyst's Office already estimates a structural shortfall of $20 billion to $35 billion a year through 2027-28.

Proposition 40 raises the stakes

Proposition 40, the 2026 Billionaire Tax Act on the November ballot, would layer a one-time tax of 5% of assets on top of that system for residents worth more than $1 billion. The union backing it, SEIU-United Healthcare Workers West, says it could raise $100 billion to offset federal health spending cuts. The Legislative Analyst's Office estimates tens of billions in the first years, followed by income tax revenue declining by hundreds of millions of dollars annually as some wealthy residents leave.

Opponents call the measure a Trojan horse that will eventually reach beyond billionaires, and they argue the departures have already started, with at least six billionaires relocating before January 1, 2026. Google co-founder Sergey Brin has donated $82 million to a committee fighting the proposal, one of several that have raised more than $118 million from fewer than a dozen donors. Governor Gavin Newsom opposes the measure and rejected a scaled-back 2% version offered by the union. It is against this backdrop that Mark Zuckerberg of Meta has said he is considering leaving the state if the tax passes.

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Options market and stocks to watch

California's revenue is effectively a leveraged bet on equity markets and tech valuations, so a sharp drawdown hits the state budget and the founder-led names headquartered there at the same time. The direct reads are Alphabet and Meta, whose founders face the same residency math driving the debate. Watch the November vote on Proposition 40, any further relocation announcements from high-profile founders, and the state's revenue reports for capital gains sensitivity, and follow the story on the Unusual Whales news feed.

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