Recent developments indicate that some Silicon Valley billionaires have threatened to flee California. The most cited reason is the 5% tax, but TechCrunch says that’s not exactly the issue.
The announcement of billionaires leaving California has generated some confusion, especially regarding the cause. The New York Post clarifies that the proposed 5% wealth tax would affect founders on their voting shares, rather than the actual value of the shares they own.
The NY Post gives the example of Larry Page.
Page owns about 3% of Google, but controls approximately 30% of the voting power through dual-class shares.
The proposal would mean he would be taxed on that 30%.
For a company valued at hundreds of billions, this is much more than a rounding error.
The New York Post reports that a former founder of SpaceX, which is developing technology for power grids, would face a tax bill during the company’s Series B funding round that would wipe out all of his holdings.
David Gamage, a law professor at the University of Missouri who helped draft the proposal, speaking to The San Francisco Standard, downplayed the reaction from Silicon Valley billionaires. “I don’t understand why billionaires don’t just consult good tax lawyers,” Gamage said.
Gamage argues that founders wouldn’t be obligated to sell. The law professor even suggests that those who hold the majority of their wealth in private equity could open a deferred account for assets they don’t want to tax immediately. In that case, the state of California would only charge 5% when those shares are eventually sold.
According to Gamage, “if your startup fails, you pay nothing,” “but if your startup is the next Google, you’re giving California a portion of your risk.” According to him, founders could present alternative valuations from certified appraisers, reflecting the true sale value of the shares, instead of being stuck with the standard voting control formula.
In turn, tax expert Jared Walczak argues that this is very little consolation. For startups that are not publicly traded, calculating valuations is “inherently difficult,” he told the NY Post. “These are not simple cases—you can arrive at a very different conclusion not out of dishonesty.” And if the state disagrees with your valuation, it’s not just the company that bears the consequences; the state can also penalize the person who calculated the value. Even with alternative valuations, founders would still face enormous taxes on the control they hold, but on wealth they have not yet realized.
What is 5% taxation?
Who proposed it: The Service Employees International Union-United Healthcare Workers West (SEIU-UHW).
What it is: A one-time 5% tax on the net worth (assets such as stocks, real estate, and artwork) of individuals with assets exceeding $1 billion.
Objective: To generate revenue to offset cuts in federal healthcare funding.
Status: It is a grassroots initiative that needs sufficient signatures to qualify and then voter approval, possibly for the November 2026 ballot.
In other words, the California healthcare union is leading a grassroots initiative to create a one-time 5% tax on anyone with assets exceeding $1 billion.
The union argues that the measure is necessary to offset the deep healthcare cuts that President Trump signed into law last year, including reductions in Medicaid subsidies and the Affordable Care Act (ACA).
The goal is to raise approximately $100 million. The proposal would require approximately 200 billion in taxes, and the tax would be applied retroactively to anyone residing in California on January 1, 2026.
According to the Wall Street Journal, Silicon Valley’s elite has formed a group on Signal called “Save California.” The group is gathering fierce, bipartisan resistance, including everyone from Trump’s cryptocurrency czar David Sacks to Kamala Harris’s mega-donor Chris Larsen.
Governor Gavin Newsom believes the proposal will not succeed. “This will be defeated, I have no doubt,” he told the New York Times, adding that he has been working “tirelessly behind the scenes” against it. “I will do whatever it takes to protect the state.”
On the other side of the barricade, the union is not backing down. “We simply tried to keep emergency services open and save patients’ lives,” said Debru Carthan, a member of the executive committee. “The few who left showed the world how greedy they really are.”
The proposal requires $875,000 signatures to enter the November vote, where a simple majority would be needed to pass.
