Ro Khanna

(CNN) — The downfall of a one-time wealth tax on billionaires in solidly Democratic California – during a blue wave election – is a sobering outcome for its advocates, including progressive leaders such as Sen. Bernie Sanders and home state Rep. Ro Khanna.

But it could also be a challenge for a prominent opponent, outgoing Gov. Gavin Newsom, as he eyes a potential 2028 presidential campaign. Newsom said he would vote against the measure, arguing that a single-state effort would only drive billionaires to other states and harm California’s budget.

With Khanna himself weighing a White House bid, the policy split could animate a smoldering divide between progressives in the upcoming national campaign. Even while California voters overall rejected the wealth tax, exit polls showed that Democratic voters favored it by nearly two-to-one.

“The reason we didn’t win is because of Newsom,” said Khanna, who represents Silicon Valley in the House and has allied himself with Sanders. “He chose to align with Republican donors, Trump donors, instead of the California Democratic Party and the California labor movement. It was appalling.”

Newsom’s team declined to respond to Khanna, who accused Newsom of not wanting to “offend the billionaire donors whose money he wants to get … for running a campaign.”

But a source familiar with the governor’s thinking says Newsom views the results of the ballot initiative as an affirmation of his position rather than a future political liability.

The source argued he was comfortable bucking conventional wisdom, pointing to his early advocacy for legalizing gay marriage, and the more recent decision to commute the sentences of all 548 state death row prisoners to life without parole.

Newsom argued before the vote that he backed a “true minimum tax on billionaires” and closing loopholes at the national level, acknowledging the broader policy arguments and political priorities of the Democratic electorate.

Proponents, however, remain frustrated with his opposition to the wealth tax, and blamed him for the defeat.

“It turned out that in this election, the Democratic governor was on the side of billionaires and not on the side of health workers,” said Brian Galle, a professor at the University of California, Berkeley, and one of the architects of the initiative. “It’s very difficult, it turns out, to do progressive tax policy if you have a popular Democratic governor who’s telling voters to do something different.”

Advocates of the tax said it was a necessary response to federal healthcare spending cuts from Republicans’ One Big Beautiful Bill Act, estimating a shortfall of about $20 billion per year for California moving forward, which threatens the state’s Medi-Cal program that provides healthcare to low-income Californians.

They estimated the wealth tax could have raised $100 billion, enough to cover the shortfall for about five years.

Opponents of the measure had argued it could harm the state where they built their businesses and fortunes, with Google co-founder Sergey Brin — who was born in Moscow — comparing the tax in a rare comment to The New York Times to the society he fled as a child and saying he doesn’t want California to adopt socialism.

The wealth tax would have applied to around 250 billionaires in California, with the funding raised primarily earmarked for healthcare following federal cuts to Medicaid and other programs.

Tech and corporate leaders had threatened to move their residences, and even their businesses, out of California if the measure passed — potentially depriving the state of crucial jobs and tax revenue.

Brin was the largest backer of the opposition. He contributed $132 million, a huge sum for a state ballot initiative — but relatively small compared to up to $14 billion in potential tax liabilities he faced if it passed.

Brin’s peers hailed his contributions to the wealth tax’s projected defeat on social media posts. “We dodged a bullet on this asset seizure tax,” wrote Garry Tan, the CEO of Y Combinator, an influential startup incubator. “Huge thanks to Sergey Brin here.”

A cohort of other wealthy Californians also shelled out millions in the effort to block the tax, including venture capitalist Peter Thiel; John Doerr, chairman of the venture capital firm Kleiner Perkins; and Patrick Collison, CEO of the digital financial services company Stripe, according to campaign finance records.

Those millions funded rival ballot initiatives that could have superseded and invalidated the wealth tax, in addition to waves of ads raising concerns with voters about the measure.

Many of the ads produced by the “No” side made contested claims about the scope of the proposed tax, warning ordinary voters that they could be targeted. Several referenced Newsom’s opposition, with a person in one ad noting, “Gavin Newsom, teachers, and firefighters are all voting no. So I’m voting no.”

“Governor Gavin Newsom said it best. The wealth tax will damage California,” said another ad, backed by more than $3 million worth of airtime. “Newsom, Becerra, and Hilton are all voting no,” says a third, referencing the unified opposition between the governor and the two candidates running to succeed him.

According to AdImpact data, the spending gap was dramatic — “No” advertisers outspending “Yes” advertisers by about $140.9 million to just $234,000 on TV, digital, and radio.

Suzanne Jimenez, a sponsor of the measure as part of the group Yes on 40, accused opponents of running a “deeply misleading and corrupt campaign” and criticized the amount of money they poured into it.

“Buying an election is not the same as winning the debate,” Jimenez said in a statement, adding, “The billionaires may have bought themselves a temporary victory at the ballot box, but they have not bought themselves an end to this debate, and this is only round one. This fight to save patient lives and ensure billionaires pay their fair share has only just begun.”

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