If you’ve been keeping up with the recent trend of billionaires leaving California, you may be wondering what’s causing the concern. Surprisingly, it’s not just about the 5% tax rate. The proposed wealth tax is actually targeting founders’ voting shares rather than their actual equity ownership.
Take Larry Page, for example, who owns about 3% of Google but controls around 30% of its voting power through dual-class stock. Under this new tax proposal, he would be required to pay taxes on that 30% of voting power. This could result in a significant tax bill for individuals with holdings in companies worth billions of dollars. The New York Post reported that a founder from SpaceX facing a tax bill at the Series B stage that would essentially wipe out his entire stake in the company.
David Gamage, a law professor at the University of Missouri involved in crafting the proposal, believes that Silicon Valley’s reaction is exaggerated. He suggests that billionaires consult tax experts to navigate the new regulations effectively. Founders could potentially avoid immediate taxation by setting up deferral accounts for assets not yet realized. California would then collect a 5% tax when these shares are eventually sold. Gamage also mentioned the option for founders to provide alternative valuations from certified appraisers, reflecting the actual market value of their shares rather than relying on the default voting-control formula.
However, the challenges remain significant. For privately held startups, determining accurate valuations can be complex and subjective. According to tax expert Jared Walczak, these valuations are not straightforward and could lead to varying conclusions. Disagreements with the state over valuations could result in penalties, not just for the company but also for the individual responsible for the appraisal. Even with alternative valuations, founders may still face substantial tax liabilities on unrealized wealth tied up in voting control.
In case you missed it, a healthcare union in California is advocating for a one-time 5% tax on individuals with a net worth exceeding $1 billion. The initiative aims to offset healthcare funding cuts implemented by former President Trump, including reductions in Medicaid and ACA subsidies. The union anticipates generating approximately $100 billion from around 200 individuals, with the tax being retroactively applied to residents as of January 1, 2026.
Despite the union’s efforts, there has been significant pushback from various quarters. Silicon Valley elites have formed a group called “Save California,” denouncing the proposal as “Communism” and poorly defined. Some individuals, such as Larry Page and Peter Thiel, have taken preemptive measures by investing in properties and relocating offices outside California. Even Governor Gavin Newsom has voiced opposition, expressing confidence in defeating the proposed tax and pledging to protect the state’s interests.
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The healthcare union remains steadfast in its stance. Executive committee member Debru Carthan emphasized the necessity of the tax to support healthcare services and save lives. Those who have left California are criticized for their perceived greed, highlighting the divide in opinions on the proposed tax. The initiative requires 875,000 signatures to qualify for the November ballot, where it would need a simple majority to pass.
