Why Silicon Valley is really talking about fleeing California (not the 5%)

If you’ve been watching the exodus of billionaires from California with some confusion, here’s what’s actually troubling: It’s not a 5% rate. As the New York Post highlighted on Friday, the proposed wealth tax would affect founders on their voting shares rather than the actual shares they own.

Take Larry Page, who owns about 3% of Google but controls nearly 30% of its voting power through dual-class stock. Under this proposal, he would owe taxes on that 30%. For a company worth hundreds of billions, this is much more than a rounding error. The Post reports that SpaceX’s co-founder, a network-building technology graduate, will face a tax bill in the company’s Phase B phase that would wipe out his entire holdings.

David Gammage, a University of Missouri law professor who helped draft the proposal, believes Silicon Valley is overreacting. “I don’t understand why billionaires don’t call good tax lawyers,” he told the San Francisco Standard this week. Gamage insists the founders won’t have to sell. Those with most of their wealth in private equity can open a deferred account for assets they don’t want to be taxed immediately — instead California will take 5% when those stocks are eventually sold. “If your startup fails, you pay nothing,” he explained. “But if your startup is the next Google, you’re giving California a cut of your gamble.” He also said founders could offer alternative valuations from certified appraisers that reflect what the shares could actually be sold for, rather than sticking with a default voting control formula.

But that’s very little consolation. For startups that aren’t publicly traded, calculating valuations is “inherently difficult,” tax expert Jared Walczak told the newspaper. “This is not clear-cut – you could reach a completely different conclusion not because of dishonesty.” If the state doesn’t agree with your assessment, the company isn’t the only one on the hook; The state can also punish the person who calculated the assessment. Even with alternative valuations, the founders would still face huge tax bills on the control they had but did not create the wealth.

Now, if you’ve been under a rock: The California Health Care Association is pushing a ballot initiative to impose a one-time 5% tax on anyone worth over $1 billion. The union argues it is necessary to offset the deep cuts to health care that President Trump signed into law last year, including cuts to Medicaid and the ACA. As originally envisioned, they expect to collect about $100 billion from about 200 individuals, and the tax will be applied retroactively to anyone living in California as of January 1, 2026.

But the resistance is fierce and partisan. As the Wall Street Journal reported last weekend, Silicon Valley elite have formed a cross-signal chat called “Save California” that includes everyone from Trump’s cryptocurrency czar David Sachs to mega-donor Kamala Harris Chris Larsen. They called the proposal “communism” and described it as “ill-defined.” Some are taking precautionary measures as well, with Larry Page reportedly dropping $173.4 million on two waterfront properties in Miami over the past month and the first week of the new year, and Peter Thiel leasing office space in Miami last month. (Thiel has had ties to Miami for years — including home — but an uncharacteristic press release about the move seemed intended to send a message.)

Even Gov. Gavin Newsom is fighting it. “This will be defeated, there’s no doubt in my mind,” he told the New York Times this week, adding that he had been “working relentlessly behind the scenes” against the proposal. “I will do what I have to do to protect the state.”

For now, the union is not backing down. “We are simply trying to keep emergency rooms open and save patients’ lives,” executive committee member Debro Carthan told the newspaper last weekend. “The few who left have shown the world how outrageously greedy they truly are.”

The proposal needs 875,000 signatures to go on the ballot in November, where it will need a simple majority to pass.