A proposed wealth tax aimed toward billionaires hasn’t but certified for California’s poll, but it surely’s already sparked intense pushback from tech founders within the state.
It began when the New York Occasions reported that enterprise capitalist Peter Thiel and Google cofounder Larry Web page have been wanting into leaving California in case the tax turns into legislation.
Democratic Rep. Ro Khanna, who represents a part of Silicon Valley, flagged the story on X and echoed President Franklin Roosevelt by including “I’ll miss them very a lot.”
The proposal requires California residents value greater than $1 billion to pay a one-time tax equal to five% of their property that may be paid over 5 years.
The wealth tax’s backers, who need to use the income to assist offset federal funding cuts for healthcare, should nonetheless collect sufficient signatures earlier than it could get on the poll in November 2026.
Whereas Khanna is a member of Congress and never a California state lawmaker, his assist for the wealth tax unleashed a flood of adverse reactions.
Palmer Luckey, cofounder of protection tech startup Anduril, warned the tax would drive founders to promote large items of their corporations to pay for “fraud, waste, and political favors for the organizations pushing this poll initiative.”
If he and his rich friends can’t give you billions of {dollars} in money to pay the tax, he mentioned the state may seize his residence and garnish his wages.
“One market correction, nationalization occasion, or prohibition of divestiture (by no means unusual throughout wartime) and I’m screwed for all times,” Luckey posted on X.
Of explicit concern is how the potential wealth tax may deal with paper income from inventory positive factors and stakes in corporations that haven’t gone public, a key type of compensation amongst startups which have but to show worthwhile.
Figma cofounder and CEO Dylan Subject identified that founders and doubtlessly early workers may get caught up within the wealth tax however wouldn’t be capable of use firm inventory to pay it. Some founders may must pay capital positive factors taxes, which means they might face a “double tax occasion.”
And within the occasion a startup has an unsuccessful yr, founders nonetheless on the hook for the wealth tax could also be compelled to decrease their startup’s valuation through a “down spherical” that may make it tougher to attract expertise and buyers; take out a mortgage that they could have hassle repaying; or depart California.
“Silicon Valley startups (mockingly) observe the herd. As soon as sufficient revered corporations/founders set up a sample, different startups will observe, even when the wealth tax doesn’t apply to them but,” Subject posted on X.
For his half, Khanna mentioned he opposes capital positive factors taxes on unrealized revenue and helps workarounds for founders with illiquid property and unprofitable corporations.
He additionally mentioned tax {dollars} helped construct the AI business and dismissed the concept that tech entrepreneurs wouldn’t begin corporations within the state attributable to a 1% per-year tax, including that innovators are drawn to the world’s expertise.
“We can’t have a nation with excessive focus of wealth in a couple of locations however the place 70 p.c of Individuals imagine the American dream is useless and healthcare, childcare, housing, schooling is unaffordable,” he mentioned on X. “What’s going to stifle American innovation, what is going to make us fall behind China, is that if we see additional political dysfunction and social unrest, if we fail to domesticate the expertise in each American and in each metropolis and city.”
However Dave Friedberg, cofounder and CEO of Ohalo Genetics, mentioned the wealth tax nonetheless quantities to an “organized authorities seizure of personal property from residents” who’ve already paid different taxes that may whole 53% in California.
He mentioned the tax flirts with socialism and represents “a slippery slope that has by no means gone wherever good (see financial results in USSR, Cuba, Venezuela, France and Norway wealth tax and many others.)”
Garry Tan, CEO of tech startup accelerator Y Combinator, informed the New York Put up that the wealth tax would drive capital out of the state, damage innovation, and ultimately weaken assist for healthcare providers.
“This measure would trigger a stampede of unicorns out of California to different states, which might reap the advantages of entrepreneurs, know-how and jobs that California enjoys now,” he added.
