The initiative was bankrolled by wealthy civil rights attorney Molly Munger and was widely seen as a threat to Gov. Jerry Brown's own tax increase proposal, Proposition 30.
Munger said after Tuesday night's defeat that it was not the outcome that was hoped for but that transformational change can take a long time.
Munger's proposal would have raised income taxes on nearly everyone on a sliding scale for 12 years, with the wealthy paying the highest rates.
She spent more than $45 million promoting it and had support from the California State PTA, but Proposition 38 never passed the 50 percent threshold in public opinion polls.
