California Props 3 and 42: What the Vote Changed for High Earners

Figures reflect rules in effect as of November 2026.

California voters approved Proposition 3 and Proposition 42 on 3 November 2026 and rejected Proposition 40, the one-time tax on billionaires. Proposition 3 makes the state’s three highest income tax rates permanent instead of letting them lapse. Proposition 42 bars new state taxes on owning financial assets. Neither changes what you owe for 2026.

Five of the measures on the 3 November ballot touched taxes. Two passed, three failed, and the two that passed point in opposite directions for the same household: one keeps the top rates in place for good, and the other closes off a kind of tax California has never had.

Two things before going further. The counts below are not final, and I say so again further down, because the distinction matters. And this is a description of what passed, not an argument about whether it should have. An adviser’s job here is to tell you what the rules now are.

What did Proposition 3 do?

Proposition 3 passed, 60.0 percent to 40.0 percent.¹ It makes permanent the higher personal income tax rates first established by Proposition 30 in 2012 and extended by Proposition 55 in 2016.²

Those are the 10.3, 11.3 and 12.3 percent rates that sit above California’s 9.3 percent bracket. The official voter information guide puts the entry point for them at roughly $371,000 of income for single filers, $742,000 for joint filers and $505,000 for heads of household, at 2025 levels, adjusted annually for inflation.³ Without Proposition 3, all three would have lapsed and the top rate would have fallen back to 9.3 percent.²

The Legislative Analyst estimates the measure maintains between $5 billion and $15 billion a year of state income tax revenue, roughly 40 percent of it going to schools and community colleges, and notes that the top 2 percent of California taxpayers pay these rates and account for about half of all state income tax.²

The important point is what Proposition 3 is not. It does not raise anyone’s rate. It removes an expiry date from rates already in force. Nobody’s withholding changes, and no return comes out differently because of it.

When were those rates going to expire?

This is worth a short detour, because the official documents do not agree with each other and I would rather say so than pick one.

The voter guide’s own title and summary describe the rates as currently set to expire in 2031.³ The Legislative Analyst’s background section says Proposition 55 extended them until 2030, and the Analyst’s own rate table is headed “Now Through 2030” and “After 2030”.² The likeliest reading is that these describe the same endpoint from opposite directions, the last year the rates applied against the first year they would not have. But no document I read says that in words, and the difference between a last year and a first year is exactly the sort of thing that matters when you are sequencing income across a boundary.

It is moot now, which is the point. The boundary has been removed. I mention it only because anyone whose plan was built around that date was probably working from one of the two readings without knowing the other existed.

What happened to the wealth tax?

Proposition 40 failed, 46.3 percent to 53.7 percent.⁴ It would have imposed a one-time tax of 5 percent on the net worth of Californians worth more than $1 billion, fixed by residency on 1 January 2026 and payable in 2027, with the option to spread payment over five years at additional cost. Real estate, pensions and retirement accounts would generally have been excluded.⁴

The Legislative Analyst estimated it would have raised tens of billions of dollars spread across several years, against a possible ongoing loss of under $1 billion a year in income tax as some of those taxpayers left the state or reduced their taxable income.⁴

Almost nobody reading this would have paid it. It matters anyway. A threshold in a wealth tax is a policy choice rather than a fact of nature, and the question of whether California should tax accumulated wealth rather than income has now been put to voters and answered. The measure that passed alongside it makes that answer considerably harder to revisit.

What did Proposition 42 do?

Proposition 42 passed, 52.5 percent to 47.5 percent.⁵ It is a constitutional amendment prohibiting new state taxes on the ownership of personal property.⁶

The Legislative Analyst defines personal property as everything people own other than real estate, and names the relevant category directly: “One major example is financial assets like stocks and investment accounts.”⁶ The Analyst is also explicit that the state does not currently tax the ownership of those assets, only the income they produce.⁶

So the line that matters is between owning and earning. Under Proposition 42 the state cannot create a new tax on the fact that you hold a portfolio. It can still tax the dividends, interest and realised gains that portfolio produces, exactly as it does today. The measure also limits the circumstances in which the Legislature or a ballot measure can raise a tax retroactively, though the Analyst does not set out those limits in detail.⁶

Two cautions, both of which I would want stated if I were reading this rather than writing it. The Analyst’s description is plain-language summary, not the operative text of the measure, and the analysis carries a note on every page that it is subject to court-ordered changes.⁶ And it addresses financial assets as a category; it does not say anything specific about retirement accounts. If the precise reach of “personal property” bears on a decision you are weighing, that is a question for a California tax attorney, and not one a blog post should answer for you.

Which measures failed?

Three of the five. Proposition 40 is above. The other two were quieter and are worth a line each.

• Proposition 41 failed, 45.9 percent to 54.1 percent.⁷ It would have required State Auditor reviews of programmes funded by new or increased special taxes, and would have constrained the state’s ability to exclude new special-tax spending from its appropriations limit.⁸
• Proposition 43 failed, 43.4 percent to 56.6 percent.⁷ From 1 January 2027 it would have required a two-thirds vote for new, increased or extended local special taxes proposed by voters, reversing recent court decisions that had allowed a simple majority.⁹

Both failing means the status quo holds in both cases. For a Los Angeles household the second is the one to keep half an eye on. Local measures are where the next few years of tax change are most likely to appear, and the threshold for voter-proposed local special taxes stays where it was.

When does any of this take effect?

Not yet, and the answer matters less than it sounds like it should.

First, the counts above are unofficial. County elections officials have until 3 December 2026 to certify their results, the returns go to the Secretary of State on 4 December, and the Statement of Vote is certified on 11 December.¹⁰ Every figure in this article is a snapshot taken before that. The margins are wide, Proposition 3 by twenty points and Proposition 42 by roughly 480,000 votes, so the outcomes are not seriously in doubt. But passed and certified are different words and I am using them deliberately.

Second, and more usefully: neither measure changes a rate anyone pays this year. Proposition 3 removes a future expiry from rates that are already in force. Proposition 42 prohibits taxes that do not exist. There is no 2026 return, and no 2027 withholding election, that comes out differently because of either one. The effective date is a question for lawyers; it is not a deadline for you.

What California still taxes the same way

This is the part most often missed, and it was as true on 2 November as it is now.

California gives capital gains no preferential rate. The Franchise Tax Board states it in two sentences: “California does not have a lower rate for capital gains. All capital gains are taxed as ordinary income.”¹¹

Which means the rates Proposition 3 has just made permanent are the rates that apply to a large realised gain: an option position exercised and sold, a vested block finally let go, a business sold. Federal law gives long-term gains their own schedule. California does not. For a household above those thresholds, the state’s share of a liquidity event is charged at the top marginal rate, and that is no longer scheduled to change at the end of the decade.

If you are carrying a concentrated position, the ways to reduce that exposure without triggering the gain have not changed. The arithmetic behind them has simply become more durable.

What changes in your planning, and what does not

Less than the result suggests, which is usually how ballot measures work.

What changed is an assumption. Anyone who had been sequencing gains, Roth conversions or the sale of a business around a lower-rate window at the end of the decade no longer has one to aim at. That window is not narrower. It is gone. If the assumption was load-bearing in your plan, it needs revisiting; if it was not, nothing follows from the result at all.

What did not change is everything else. Your 2026 return, your 2027 rates relative to 2026, and the tools available. Harvesting losses against realised gains, concentrating charitable deductions into a high-income year, and the timing of a liquidity event all work exactly as they did the day before the election.

What I would resist is treating an election result as a reason to move quickly. The expensive mistakes after a tax change tend to be made in the few weeks when the change is in the news, on facts that had not actually moved. Permanent rates are the opposite of a deadline. If anything, this is an argument for settling these questions in advance and in writing, at a moment when there is no news to react to.

The Bottom Line

California’s three highest income tax rates are now permanent rather than scheduled to lapse, and a new state tax on simply owning financial assets is now barred by the state constitution. The one-time tax on billionaires failed, as did the two measures on spending limits and local special taxes. None of this changes what you owe for 2026, and none of it is official until the Secretary of State certifies the vote on 11 December. What it does change is the shape of the next decade: the lower-rate window some plans were pointed at no longer exists, and California’s treatment of capital gains as ordinary income is now a permanent feature of planning here rather than a temporary one.

If you would like to talk through what this changes in your own plan, I offer a complimentary 15-minute call at calendly.com/westlightwealth.