A California Ballot Collision: Wealth Tax vs. Savings Protections
The Retirement and Savings Protection Act (RPSPA) bans wealth taxes, retroactive taxation, and state tax creativity on retirement account taxation.
Days after the healthcare union behind the proposed 5% wealth tax on California billionaires announced it had gathered enough signatures to qualify for the November ballot, backers of several additional measures made similar announcements.
Two of those measures contain provisions that would directly interfere with the wealth tax act, setting up a showdown. Under the California Constitution (Article II, Section 10(b)):
If two or more measures approved at the same election conflict, the provisions of the measure receiving the highest affirmative vote prevail.
One of the measures, the proposed Retirement and Personal Savings Protection Act (RPSPA) of 2026, draws bright lines around what the state cannot tax. It prohibits new taxes on the ownership or control of retirement accounts—such as 401(k)s and IRAs—as well as on the much broader categories of personal savings and individually owned assets. It also bans retroactive taxation.
The direct conflict between the RPSPA and the wealth tax act is that the billionaire tax includes broad categories of personal property in its base, including personal savings. The RPSPA asks voters whether they truly want the state to claim the authority to tax wealth at all, not just billionaire wealth.
And as for retroactivity, how would you feel about being taxed based on your residency, conduct, or activities before a tax even existed? That is effectively what the wealth tax act does: the November 2026 election would impose taxes based on California residency status dating back to December 31, 2025. The RPSPA would ban that practice.
The use of retroactivity in the wealth tax proposal is hardly the first use of retroactivity in California tax initiatives. In November 2012, California voters passed Proposition 30, which implemented progressive marginal tax rates of up to 13.3% for top earners. That applied to 2012 income. The federal government also routinely uses retroactivity in tax laws as applied to income.1 But federal retroactivity is typically about income and transactions within the tax year, not about reaching back to impose taxes based purely on past status like residency.
So why the focus on retirement savings in the title of the provision? One argument is that the RPSPA is trying to make voters think about what future policymakers could do once the principle of taxing assets is established. It appeals to voters to stop state asset confiscation before the logic expands further. While approximately 0.001% of California households are billionaires, approximately 62% have retirement accounts.
But the RPSPA is doing something broader than simply opposing the current wealth tax proposal. It aims to prevent future tax innovations by Sacramento lawmakers, regulators, or initiative drafters that could lead to additional tax burdens on 401(k)s, IRAs, and even public employee pensions—even if such a measure is not referred to as a wealth tax or tax on personal savings.
How realistic is the threat of future state taxes on retirement savings? There are some additional protections against the taxation of retirement plans by states in the federal Employee Retirement Income Security Act (1974), and it is possible that the exclusion of 401k’s and IRAs from the wealth tax proposal was meant to ensure it didn’t run afoul of those. Alterantively, perhaps that exclusion was specifically designed to circumvent claims that the wealth tax intiative was the start of an attempt to tax retirement assets.
Regardless, new state taxes targeting retirement accounts in some form seem entirely plausible. Federal courts have upheld the constitutionality of many types of taxes, and a state-level tax could be designed to circumvent ERISA pre-emption.
For example, future taxes could treat annual investment earnings inside retirement accounts as taxable income to the participant, even if not distributed. Or they could impose an additional state income tax (or standalone personal tax) on individuals whose retirement balances exceed a high threshold. Or they could leave the deferral intact while assets are in the plan, but impose a supplemental tax when distributions occur, designed to recapture the value of prior deferral. Some of these approaches would likely face ERISA pre-emption challenges, but there is meaningful uncertainty about how courts would rule.
As an example of California’s expansive tax engineering, consider the health savings account (HSA), an account owned by around 4.5 million people in California and as many as 60 million people nationwide. These accounts are generally coupled with high-deductible health insurance, and both the employer and employee contribute to them on a federally tax-free basis to help offset those costs. Money in HSAs grows free from federal income tax. HSAs give individuals ownership over assets they can use to pay medical expenses, creating skin in the game and stronger incentives to consider cost when purchasing medical services.
California, however, does not play along with the HSA framework. It does not consider HSA contributions to be tax deductible, nor does it consider returns earned inside HSAs to be tax exempt. Californians with HSAs must report any interest, dividends, or realized capital gains inside those HSAs and pay state tax on them. Imagine applying similar rules to 401(k)s and IRAs.
The RPSPA adds further barriers against similar tactics being applied to retirement accounts, though it would not affect California’s current HSA tax treatment because the initiative follows its own anti-retroactivity principle. The measure explicitly states that it does not limit taxes already in effect before December 31, 2025. However, the RPSPA could constrain future efforts to expand similar tax treatment to retirement accounts and other personal savings vehicles.
A final area mentioned by the initiative is the treatment of defined benefit pension benefits of public employees like teachers, police officers, and firefighters. The RPSPA would prohibit the taxation of the future value of pensions. An employee earns a valuable asset when they accrue the right to future pension payments through their job. Standard tax treatment is to tax the pension when it is paid out, not to tell the employee that the present value of their pension has gone up by a certain amount in a given year and that it should therefore be taxed.
This treatment parallels the distinction between taxing realized and unrealized capital gains. One motivation often cited by the wealth tax proponents is a desire to tax unrealized capital gains, which the wealth tax implicitly does. By the same logic, one could argue that accrued pension rights are valuable economic gains and should be taxed when earned rather than when paid out.
While it would take a serious political shift in California before a proposal to tax pension accruals of public employees gained traction, here again the RPSPA asks those with these plans: how would you like to be treated the way the wealth tax act treats others? And before the plans get any more underfunded and state policymakers start to look for creative ways to prevent public pensions from bankrupting the state, would you like to ensure that the state cannot tax your accruals?
The point of these measures is to get voters thinking about how to protect the aspects of their own savings that could be targeted by future state-level taxation, and to protect themselves while they still have the chance.
If the RPSPA passes the 50% threshold and receives more votes than the wealth tax, then the conflicting provisions would prevent the implementation of the wealth tax entirely. For that to happen, there would logically have to be some people who vote for both the wealth tax and the RPSPA—presumably those who do not fully understand the conflicting provisions thinking, “I’d like to tax billionaires, but I wouldn’t want the same rules to apply to me.” In that case, their vote results in one against the wealth tax and in favor of the protection of retirement savings.
The measure does not allow voters to pick and choose. They cannot elect to slam billionaires while also protecting their own retirement savings and other personal assets from confiscation. They cannot elect to impose retroactive taxes on the wealthy without also protecting themselves from retroactive taxation. In essence, it appeals to their sense of fairness that everyone should be subject to similar principles of taxation.
The key question at the ballot box will be whether those principles outweigh the redistributive impulses motivating support for the wealth tax. Favoring such extreme redistributive policies would be short-sighted, as the resulting decline in economic activity ultimately would harm the very voters who expected to benefit.
This was case both in the Reagan-era Tax Reform Act of 1986 and the Obama-era American Taxpayer Relief Act of 2012