A proposed wealth tax targeting billionaires is currently a major topic of discussion within California’s tech industry, with the debate revealing details about their financial lifestyles.
While NVIDIA CEO Jensen Huang has expressed being “” with the idea, many others are opposed, such as LinkedIn cofounder and significant Democratic donor Reid Hoffman, who labeled the proposal “horrendous” for innovation. Concurrently, venture capitalist Peter Thiel and Google cofounders Larry Page and Sergey Brin have reportedly already distanced themselves from California as a precaution, in the event the measure qualifies for the November ballot and is approved.
The initiative would require California residents with a net worth exceeding $1 billion to pay a single tax amounting to 5% of their assets, with the option to spread payments over a five-year period. The Service Employees International Union-United Healthcare Workers West, the union advocating for the measure, projects the tax could generate $100 billion in revenue to help counter federal reductions in health spending.
However, one technology investor has proposed different solutions, while recognizing a significant loophole exploited by the wealthy to avoid income taxes.
During a podcast appearance, cohost David Friedberg described the potential ballot measure as resembling an asset seizure—one that might be extended beyond a single year and establish a precedent for other jurisdictions.
“It’s completely fair to argue that billionaires are not paying their fair share of taxes, and it’s completely fair to say that ultra-high net worth individuals are not paying their fair share,” he stated. “They do pay income tax. But the reality is that many extremely wealthy people take out loans against their assets and live on that borrowed money. This allows them to avoid taxes because they never have to sell the assets they own.”
Friedberg outlined the “buy, borrow, die” strategy for evading income taxes by sustaining a lifestyle on debt that remains unpaid until the borrower’s death. Heirs then repay the loans by selling the deceased’s assets, and the lifetime gains on those assets escape taxation.
From Friedberg’s perspective, this specific practice is the primary target of the proposed California wealth tax.
“A straightforward way to fix this is to impose a capital gains tax when they borrow against assets that have unrealized gains,” he added. “It’s a very simple solution. That would resolve the issue.”
Friedberg noted that increasing the capital gains tax is another potential approach, though he personally does not endorse that idea.
These taxes are levied when assets such as real estate or stocks are sold, but he clarified that raising them, rather than implementing a wealth tax, would make the system function more similarly to an income tax.
A group of California billionaires are also debating the wealth tax in a Signal chat. Their ongoing conversation has produced other alternatives, such as offering the government illiquid stock as a zero- or low-interest loan for a set period and taxing stock that is already publicly traded.
According to sources who spoke with the Journal, opponents of the tax caution about its potential negative effects on economic growth and startups, while supporters highlight the current AI boom and argue that California’s ultra-rich would remain among the globe’s wealthiest individuals.
The proposal has also created a division among Democratic lawmakers in California. Governor Gavin Newsom opposes it, whereas U.S. Representative Ro Khanna supports it. However, even the congressman has acknowledged that the proposal’s wording requires refinement and has stated he does not want illiquid stakes or voting shares to be subject to the tax.
Newsom informed The New York Times on Tuesday that he is actively working behind the scenes to oppose the proposal and will continue to fight it, even if it makes it onto the November ballot.
Palmer Luckey, cofounder of defense technology startup Anduril, has stated that the tax would create a significant burden if privately held shares, which are often used as compensation in startups that are not yet profitable, increase in value.
In a separate warning, Y Combinator CEO Garry Tan recently highlighted that a provision in the ballot measure equates voting shares with ownership stakes, which could leave holders responsible for a substantially larger tax bill.
“This means if a founder holds shares representing only 3% of economic interest but 30% of voting control (through Class B supervoting shares), the tax would presume their ownership stake is at least 30% for valuation purposes, not 3%,” he said in a statement. “The wealth tax is poorly defined and designed to drive tech innovation out of California.”