At a Glance
- California’s proposed 5% wealth tax would hit founders on voting control, not just equity
- Larry Page would owe on 30% of Google’s voting power despite owning 3% of shares
- The health care union-backed initiative needs 875,000 signatures by November
- Why it matters: The tax could force founders to sell stakes or leave the state entirely
California’s latest wealth tax proposal has sparked a billionaire exodus, but not for the obvious reason. The 5% rate isn’t what’s driving the panic – it’s how the tax calculates wealth. Instead of targeting actual equity ownership, the proposal zeroes in on voting control through dual-class stock structures.
This distinction matters enormously for Silicon Valley founders. Larry Page owns about 3% of Google but controls roughly 30% of its voting power. Under the proposed tax, he’d owe 5% on that 30% control value – not his 3% equity stake. For a company valued in the hundreds of billions, that difference translates to massive tax bills.
The real-world impact becomes clear when examining startup scenarios. One SpaceX alumni founder building grid technology would face a tax bill at the Series B stage that would completely wipe out his entire holdings.
The Mechanics Behind the Tax
David Gamage, the University of Missouri law professor who helped craft the proposal, dismisses the backlash as overblown. “I don’t understand why the billionaires just aren’t calling good tax lawyers,” he told The San Francisco Standard. Gamage insists founders have options to avoid forced sales.
The proposal includes a deferral mechanism for private stock. Founders can open deferral accounts for assets they don’t want taxed immediately. California would take 5% whenever those shares are eventually sold. “If your startup fails, you pay nothing,” Gamage explained. “But if your startup is the next Google, you’re giving California a share of your gamble.”
Founders could also submit alternative valuations from certified appraisers reflecting what shares could actually sell for, rather than using the default voting-control formula. However, this solution presents its own complications.
The Valuation Nightmare
Tax expert Jared Walczak highlighted the inherent problems with private company valuations. “These are not clear cut – you could come to a very different conclusion not because of dishonesty,” he told the New York Post.
The risks extend beyond disagreement. If California rejects a founder’s appraisal, the state can penalize both the company and the individual who calculated the valuation. Even with alternative appraisals accepted, founders would still face enormous tax bills on control they hold but wealth they haven’t realized.
The difficulty compounds for startups without public trading markets. Private company valuations depend heavily on methodology assumptions, future projections, and comparable transactions. Two qualified appraisers could reach vastly different values for the same company using reasonable assumptions.
Political Battle Lines
California’s health care union champions the ballot initiative as necessary to offset federal healthcare cuts. The union argues the one-time 5% tax on anyone worth over $1 billion would raise about $100 billion from roughly 200 individuals. The tax would apply retroactively to anyone living in California as of January 1, 2026.
The union frames the tax as essential for healthcare access. “We’re simply trying to keep emergency rooms open and save patient lives,” said executive committee member Debru Carthan. “The few who left have shown the world just how outrageously greedy they truly are.”
Opposition has united an unlikely coalition. Silicon Valley elite formed a Signal chat called “Save California” including both Trump administration officials like David Sacks and Kamala Harris mega-donors like Chris Larsen. Participants have labeled the proposal “Communism” and “poorly defined.”
The Exodus Accelerates
Some billionaires aren’t waiting to see if the tax passes. Larry Page reportedly spent $173.4 million on two Miami waterfront properties across last month and early January. Peter Thiel’s firm leased Miami office space last month, issuing an uncharacteristic press release about the move.
The migration extends beyond individual relocations. Entire venture capital firms are reconsidering their California presence as the tax threat looms. Miami has emerged as the primary beneficiary, with its lack of state income tax and growing tech ecosystem providing attractive alternatives.
Governor Newsom’s Opposition
Even Governor Gavin Newsom has joined the opposition, predicting certain defeat for the proposal. “This will be defeated, there’s no question in my mind,” he told the New York Times, adding that he’d been “relentlessly working behind the scenes” against it. “I’ll do what I have to do to protect the state.”
Newsom’s opposition carries significant weight given his progressive credentials. His resistance signals the proposal may face insurmountable political hurdles even if it qualifies for the ballot.
Path to the Ballot
The union needs 875,000 signatures to place the initiative on November’s ballot. If qualified, it would need only a simple majority to pass into law. Signature gathering efforts continue despite the coordinated opposition campaign.
The timeline creates urgency for both sides. With the retroactive date of January 1, 2026, already established, billionaires must decide whether to relocate or gamble on the initiative’s defeat. The union faces pressure to gather signatures quickly enough to qualify for the ballot.
Key Takeaways
- The wealth tax targets voting control, creating massive bills for founders with dual-class structures
- Deferral options exist but require complex valuations and carry penalty risks
- Opposition spans political divides, from Trump officials to Democratic mega-donors
- The proposal needs 875,000 signatures by November to reach voters
- Some billionaires are already relocating assets and residences to avoid potential liability
The battle over California’s wealth tax represents more than another tax debate. It strikes at the heart of how Silicon Valley structures control and ownership, potentially forcing fundamental changes in how startups are built and scaled.
