A proposed wealth tax focused on billionaires has not yet qualified for California’s ballot, but it has already ignited strong pushback from tech founders in the state.
It began when reports indicated that venture capitalist Peter Thiel and co-founder Larry Page were making preparations in case the tax becomes law.
Democratic Representative Ro Khanna, who represents a portion of Silicon Valley, responded and echoed President Franklin Roosevelt, adding, “I will miss them very much.”
The proposal mandates that California residents with a net worth over $1 billion pay a one-time tax equal to 5% of their assets, which can be paid out over five years.
Backers of the wealth tax, who aim to use the revenue to help offset federal funding cuts for healthcare, still need to gather enough signatures before it can appear on the ballot in November 2026.
Though Khanna is a member of Congress and not a California state lawmaker, his support for the wealth tax sparked a wave of negative reactions.
Palmer Luckey, co-founder of defense tech startup Anduril, warned the tax would compel founders to sell large stakes in their companies to cover “fraud, waste, and political favors for the organizations pushing this ballot initiative.”
He stated that if he and other wealthy peers cannot come up with billions of dollars in cash to pay the tax, the state could seize his home and garnish his wages.
“One market correction, nationalization event, or prohibition of divestiture (not at all uncommon during wartime) and I am screwed for life,” .
Of particular concern is how the potential wealth tax might handle paper profits from stock gains and stakes in non-publicly traded companies—key forms of compensation for startups that have yet to turn profitable.
Figma co-founder and CEO Dylan Field noted that founders and potentially early employees could be subject to the wealth tax but would not be able to use company stock to pay it. Some founders might also face capital gains taxes, resulting in a “double tax event.”
In the event a startup has a poor year, founders still liable for the wealth tax may be forced to lower their startup’s valuation through a “down round” (making it harder to attract talent and investors), take out a loan they might struggle to repay, or leave California.
“Silicon Valley startups (ironically) follow the herd. Once enough respected companies/founders establish a pattern, other startups will follow, even if the wealth tax does not apply to them yet,” .
Khanna, for his part, said he opposes capital gains taxes on unrealized income and supports solutions for founders with illiquid assets and unprofitable companies.
He also noted that tax dollars contributed to building the AI industry and dismissed the idea that tech entrepreneurs would avoid starting companies in the state due to a 1% annual tax, emphasizing that innovators are drawn to the area’s talent pool.
“We cannot have a nation with extreme wealth concentration in a few places while 70 percent of Americans believe the American dream is dead and healthcare, childcare, housing, and education are unaffordable,” he said. “What will stifle American innovation, what will make us fall behind China, is further political dysfunction and social unrest, and failing to cultivate the talent in every American and in every city and town.”
But Dave Friedberg, co-founder and CEO of Ohalo Genetics, argued the wealth tax amounts to an “organized government seizure of private property from citizens” who already pay other taxes that can total 53% in California.
The tax dabbles with socialism and represents “a slippery slope that has never led to positive outcomes (see economic effects in the USSR, Cuba, Venezuela, France, and Norway’s wealth tax, etc.).”
Garry Tan, CEO of tech startup accelerator Y Combinator, stated that the wealth tax would drive capital out of the state, harm innovation, and ultimately weaken support for healthcare services.
“This measure would cause a mass exodus of unicorns from California to other states, which would benefit from the entrepreneurs, technology, and jobs that California currently enjoys,” he added.