Why Silicon Valley billionaires are thinking about fleeing California
What's the story
Silicon Valley billionaires are considering leaving California, but it's not just the 5% wealth tax rate that's driving them away. The proposed tax would be levied on founders' voting shares, not their actual equity holdings. This means that tech moguls with dual-class stock structures could end up paying significantly more than they would under a traditional wealth tax.
Tax implications
Proposed tax could significantly impact tech moguls
The proposed wealth tax could have a huge financial impact on tech moguls, especially those with dual-class stock structures. For instance, Larry Page, who owns about 3% of Google but controls around 30% of its voting power through dual-class stock, would be taxed on that entire 30%. This is a significant departure from traditional wealth taxes that are levied only on actual equity holdings.
Extreme scenarios
Tax proposal could wipe out entire holdings
The proposed tax could be so severe that it could wipe out an entire founder's holdings at the Series B stage of their company. This is especially true for early-stage companies, unlike established giants like Google. The extreme nature of this proposal has led to fears among Silicon Valley billionaires who are now looking for ways to protect their wealth.
Potential solutions
Tax deferral accounts and alternative valuations
David Gamage, a University of Missouri law professor who helped craft the proposal, thinks Silicon Valley is overreacting. He says founders wouldn't be forced to sell their stocks immediately. Those with most of their wealth in private stock could open a deferral account for assets they don't want taxed right away. California would instead take 5% whenever those shares are eventually sold.
Tax expert's view
Valuation challenges for non-publicly traded start-ups
Tax expert Jared Walczak has raised concerns over the difficulty of calculating valuations for non-publicly traded start-ups. He said these valuations are "inherently difficult" and could lead to different conclusions not because of dishonesty but due to the nature of the business. If California disagrees with an appraisal, it can penalize both the company and the person who calculated that valuation.
Union's stance
California's healthcare union pushes for wealth tax
California's healthcare union is pushing a ballot initiative for a one-time 5% tax on anyone worth over $1 billion. The union argues it's necessary to offset deep cuts to healthcare signed into law by President Donald Trump last year. They expect to raise about $100 billion from some 200 individuals, with the tax applying retroactively to anyone living in California as of January 1, 2026.