Voters Decide Prop 42 Savings Shield

Five proposals to tax retirement and personal savings have reached the California Legislature since 2019. None were enacted, but the constitutional authority for such taxes remains. Proposition 42 appears on the November ballot to close that gap.

The measure would amend the state constitution to prohibit new state taxes on retirement accounts, pensions, 401(k)s, IRAs, and other personal property. It also bans retroactive taxation, preventing the rules from changing after money has already been set aside. The proposal does not alter income or property tax rates, nor does it reduce funding for schools, public safety, or health care.

Julian Cañete, president and CEO of the California Hispanic Chambers of Commerce, notes that many Latino business owners lack formal retirement plans. Savings often come from personal pockets after payroll and rent are paid. He describes a common pattern where owners delay their own paychecks during slow months to keep employees whole, then catch up on retirement contributions later.

Cañete states that these savings are often the only resource owners have for later life, helping their children, or passing a business to the next generation. He points to California’s ranking as the third most expensive state for retirees as a reason why preserving these funds is a priority for small business owners who may work longer than planned due to costs.

Support for the measure extends beyond Latino entrepreneurs. The California Small Business Association and the California Multicultural Business Alliance back Prop 42. Cañete says firefighters, peace officers, construction workers, veterans, and seniors also support the initiative.

The ballot question asks voters to decide whether to lock in these protections. If approved, the state would lose the current constitutional authority to levy new taxes on the specified types of personal property. The vote takes place in November.