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

For those who’ve been following the billionaire exodus from California with some confusion, here’s what’s actually driving the nervousness: it’s not the 5% rate. As highlighted Friday within the Latest York Post, the proposed wealth tax would hit founders on their voting shares moderately than the actual equity they own.

Take Larry Page, who about 3% of Google but controls roughly 30% of its voting power through dual-class stock. Under this proposal, he’d owe taxes on that 30%. For an organization valued within the tons of of billions, that’s loads greater than a rounding error. The Post reports that one SpaceX alumni founder constructing grid technology would face a tax bill on the Series B stage of the corporate that may wipe out his entire holdings.

David Gamage, the University of Missouri law professor who helped craft the proposal, thinks Silicon Valley is overreacting. “I don’t understand why the billionaires just aren’t calling good tax lawyers,” he told The San Francisco Standard this week. Gamage insists founders wouldn’t be forced to sell. Those with most of their wealth in private stock could open a deferral account for assets they don’t want taxed immediately — California would as an alternative take 5% every time those shares are eventually sold. “In case your startup fails, you pay nothing,” he explained. “But in case your startup is the subsequent Google, you’re giving California a share of your gamble.” He also said founders could submit alternative valuations from certified appraisers reflecting what shares could actually sell for, moderately than being stuck with the default voting-control formula.

But that’s pretty small consolation. For startups that aren’t publicly traded, calculating valuations is “inherently difficult,” tax expert Jared Walczak told the Post. “These will not be clear cut—you possibly can come to a really different conclusion not due to dishonesty.” And if the state disagrees along with your appraisal, it’s not only the corporate on the hook; the state may penalize the one who calculated the valuation. Even with alternative appraisals, founders would still face enormous tax bills on control they hold but wealth they haven’t realized.

Now, when you’ve been under a rock: California’s health care union is pushing a ballot initiative for a one-time 5% tax on anyone price over $1 billion. The union argues it’s mandatory to offset the deep cuts to health care that President Trump signed into law last 12 months, including slashes to Medicaid and ACA subsidies. As originally envisioned, they expect to lift about $100 billion from roughly 200 individuals and the tax would apply retroactively to anyone living in California as of January 1, 2026.

However the resistance is fierce and bipartisan. As reported last weekend by the WSJ, Silicon Valley elite have formed a Signal chat called “Save California” that features everyone from Trump’s crypto czar David Sacks to Kamala Harris mega-donor Chris Larsen. They’ve called the proposal “Communism” and “poorly defined.” Some are taking just-in-case measures, too, with Larry Page reportedly dropping $173.4 million on two Miami waterfront properties across last month and the primary week of the brand new 12 months, and Peter Thiel’s firm leasing Miami office space last month. (Thiel has had ties to Miami for years — including a house — but an uncharacteristic press release in regards to the move was seemingly meant to send a message.)

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

For now, the union isn’t backing down. “We’re simply attempting to keep emergency rooms open and save patient lives,” said executive committee member Debru Carthan to the Journal last weekend. “The few who left have shown the world just how outrageously greedy they really are.”

The proposal needs 875,000 signatures to make November’s ballot, where it could need an easy majority to pass.