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

If you’ve been watching the exodus of billionaires from California with some confusion, there’s really reason to be nervous: It’s not a 5% rate. As highlighted in the New York Post on Friday, the proposed wealth tax would impact founders on their voting shares rather than their actual equity.

Take Larry Page, who owns about 3% of Google but controls about 30% of its voting power through dual-class stock. Under this proposal, he would have to pay tax on that 30%. For a company worth hundreds of billions, this is much more than a rounding error. The Post reports that the former student founder of SpaceX, which created grid technology, will face a tax bill in the company’s Series B round that could wipe out his entire stake.

David Gammage, a law professor at the University of Missouri who helped draft the proposal, believes Silicon Valley is overreacting. “I don’t understand why billionaires aren’t calling good tax lawyers,” he told the San Francisco Standard this week. Gamez says the founders will not be forced to sell. People who have most of their assets in private stocks can open a deferral account for assets they don’t want to be taxed immediately on—California will take 5% whenever those shares are eventually sold. “If your startup fails, you don’t have to pay anything,” he explained. “But if your startup is the next Google, you’re giving California part of your gambling.” He also said founders can submit alternative valuations from certified appraisers that reflect how much the shares might actually sell for, rather than being stuck with the default voting-control formula.

But this is very small consolation. Tax expert Jared Walczak told the Post that it is “inherently difficult” to calculate valuations for startups that are not publicly traded. “These are not clear cut – you could reach very different conclusions because of dishonesty.” And if the state disagrees with your assessment, it’s not just on the company; The state can also punish the person who calculates the assessment. Even with alternative valuation, founders will still face huge tax bills on the assets they control, but which they have not realized.

Now, in case you’ve been under a rock: California’s health care association is pushing a ballot initiative for a one-time 5% tax on anyone with a net worth over $1 billion. The union argues it is necessary to offset deep cuts to health care that President Trump signed into law last year, which also included cuts to Medicaid and ACA subsidies. As originally envisioned, they are expected to raise approximately $100 billion from approximately 200 individuals and the tax would apply retroactively to anyone resident in California beginning January 1, 2026.

But the resistance is fierce and bipartisan. As reported by the WSJ last weekend, Silicon Valley elites have formed a Signal chat called “Save California,” which includes everyone from Trump’s crypto hawk David Sachs to Kamala Harris’ mega-donor Chris Larson. He called the proposal “communism” and “poorly defined.” Some are even taking appropriate steps, with Larry Page reportedly plunking down $173.4 million on two Miami Beach properties between last month and the first week of the new year, and Peter Thiel’s firm leasing Miami office space last month. (Thiel has had ties to Miami for years – including as his home – but an unsubtle press release about the move was meant to send a message.)

Even Governor Gavin Newsom is fighting this. “It will be defeated, there is no question in my mind,” he told The New York Times this week. He also said he was “working tirelessly behind the scenes” against the proposal. “I will do whatever it takes to protect the state.”

At present the union is not backing down. “We’re just trying to keep emergency rooms open and save patients’ lives,” executive committee member Debrew Carthan told the Journal last weekend. “The few who left have shown the world how deeply greedy they really are.”

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