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

If you’ve been following the exodus of billionaires from California with some confusion, here’s what’s causing your nerves: it’s not the 5% rate. As highlighted in the New York Post, the proposed wealth tax will hit the founders voting shares rather than the actual equity they have.

Take Larry Page, who owns about 3% of Google but controls about 30% of the voting power through dual-class shares. Under this proposal, they have to pay 30% tax. For a company worth hundreds of billions, that’s more than a rounding error. The Post reports that one of the SpaceX alumni building grid technology will face a tax bill in the company’s Series B phase that would strip it of all ownership.

David Gamage, a University of Missouri law professor who helped draft the proposal, thinks Silicon Valley is overreacting. “I don’t understand why billionaires don’t call good tax lawyers,” he said This week’s San Francisco Standard. Gamage insisted the founders would not be forced to sell. Those with a lot of wealth in private stocks can open a deferral account for assets they don’t want to be taxed directly — California will take 5% if the stock is eventually sold. “If the startup fails, you don’t pay anything,” he explained. “But if your startup becomes the next Google, you’re giving California part of your gamble.” He also said founders could submit alternative valuations from certified appraisers that reflect the shares they can sell, rather than being stuck with the standard voting control formula.

But that’s pretty small consolation. For startups that aren’t publicly traded, calculating valuations is “really hard,” tax expert Jared Walczak told the Post. “It’s not clear – you can come to a very different conclusion not because of dishonesty.” And if the country does not agree with your assessment, it is not only the company on the hook; the state can also punish people who calculate their value. Even with the alternative assessment, the founders will still face a huge tax bill in the control they hold but the wealth they have not realized.

Now, in case you’ve been under a rock: California’s health care union is pushing a ballot initiative for a one-time 5% tax on anyone worth more than $1 billion. The union says it needs to offset the health care cuts President Trump signed last year, including cuts to Medicaid and ACA subsidies. As envisioned, they expect to raise about $100 billion from roughly 200 individuals and the tax will apply retroactively to anyone living in California starting January 1, 2026.

But the resistance is fierce and bipartisan. As reported last weekend by WSJ, Silicon Valley elite has formed a Chat signal called “Save California” which includes everyone from Trump’s crypto czar David Sacks to Kamala Harris mega-donor Chris Larsen. He called the proposal “Communism” and “undefined.” Some have also taken steps alone, with Larry Page reportedly stepping down $173.4 million on two Miami waterfront properties in the last month and first week of the new year and Peter Thiel’s company leased Miami office space last month. (Thiel has had ties to Miami for years — including a home — but it’s not typical press release about the move appears to send a message.)

Even Gov. Gavin Newsom is against it. “It’s going to be defeated, there’s no question in my mind,” he told the New York Times this weekadding that he had been “constantly working behind the scenes” against the proposal. “I will do what I have to do to protect the country.”

Now, the union is not backing down. “We’re just trying to keep the emergency room open and save patients’ lives,” executive committee member Debru Carthan told the Journal last weekend. “Those who left have shown the world how greedy they really are.”

The proposal needs 875,000 signatures to make it to the November ballot, which would require a simple majority to pass.