Silicon Valley’s Real Reason for Fleeing California
▼ Summary
– A proposed California wealth tax would levy a one-time 5% charge on billionaires, targeting the value of their voting control in companies, not just their owned equity.
– Proponents, like a health care union, argue the tax is needed to offset federal health care cuts and could raise $100 billion from roughly 200 individuals.
– Critics, including a bipartisan group of tech elites, fiercely oppose it, calling it “Communism” and prompting some billionaires to make financial moves outside California.
– A key controversy is that founders could face enormous tax bills on unrealized wealth based on difficult-to-calculate valuations of private company shares.
– The proposal’s fate is uncertain, requiring signatures for a ballot measure, and is opposed even by Governor Gavin Newsom who vows to protect the state.
The recent wave of high-profile departures from California is often attributed to general tax concerns, but a specific legislative proposal is causing significant alarm. The core issue is a proposed wealth tax that would calculate liability based on voting control in a company, not just owned equity. This distinction is critical for tech founders who often hold special shares granting them outsized influence. For someone like Larry Page, who controls about 30% of Google’s voting power through dual-class stock, the tax bill would be levied on that full controlling stake, not his smaller 3% ownership share. For founders of private companies, this could mean facing a massive tax obligation on paper wealth long before any shares are sold or liquidity is achieved.
Professor David Gamage, who helped design the proposal, argues the fears are overblown. He suggests founders could use deferral accounts or submit alternative valuations from certified appraisers to mitigate the burden. “If your startup fails, you pay nothing,” he noted, framing the tax as California taking a share of a successful gamble. However, critics highlight the immense practical difficulty. Valuing private companies is notoriously subjective, and founders could be penalized if the state disputes their chosen appraiser’s assessment, creating a risky and uncertain financial environment.
The ballot initiative, pushed by a healthcare union, seeks a one-time 5% tax on individuals with a net worth exceeding $1 billion. The goal is to raise an estimated $100 billion to counter federal healthcare funding cuts. The measure would apply retroactively to those residing in California as of January 1, 2026. Opposition has been swift and crosses political lines. A coalition of tech elites, from Trump ally David Sacks to Harris supporter Chris Larsen, has mobilized, labeling the plan “Communism.” Some are taking precautionary steps, with reports of Larry Page making major real estate purchases in Miami.
Even Governor Gavin Newsom has positioned himself against the proposal, vowing to work behind the scenes to defeat it. Meanwhile, the union advocates remain steadfast, arguing the tax is essential for keeping emergency rooms operational and framing billionaire resistance as an act of greed. The initiative requires 875,000 signatures to reach the November ballot, where it would need a simple majority to become law. The outcome will likely influence not just state finances but also the long-term relationship between California and the wealthiest architects of its modern economy.
(Source: TechCrunch)
