Larry Page, co-founder of Google Inc. and former chief executive officer of Alphabet Inc., speaks during the 2015 Fortune Global Forum in San Francisco, California, U.S., on Monday, Nov. 2, 2015. The forum gathers Global 500 CEO’s and innovators, builders, and technologists from some of the most dynamic, emerging companies all over the world to facilitate relationship building at the highest levels. Photographer: David Paul Morris\/Bloomberg *** Local Caption *** Larry Page | Image Credits:David Paul Morris\/Bloomberg \/ Getty Images <\/p>\n
If you\u2019ve been following the billionaire exodus from California with some confusion, here\u2019s what\u2019s actually driving the nervousness: it\u2019s not the 5% rate. As highlighted Friday in the New York Post, the proposed wealth tax<\/a> would hit founders on their voting shares<\/a> rather than the actual equity they own.<\/p>\n Take Larry Page, who about 3% of Google but controls roughly 30% of its voting power through dual-class stock. Under this proposal, he\u2019d owe taxes on that 30%. For a company valued in the hundreds of billions, that\u2019s a lot more than a rounding error. The Post reports that one SpaceX alumni founder building grid technology would face a tax bill at the Series B stage of the company that would wipe out his entire holdings.<\/p>\n David Gamage, the University of Missouri law professor who helped craft the proposal, thinks Silicon Valley is overreacting. \u201cI don\u2019t understand why the billionaires just aren\u2019t calling good tax lawyers,\u201d he told The San Francisco Standard this week<\/a>. Gamage insists founders wouldn\u2019t be forced to sell. Those with most of their wealth in private stock could open a deferral account for assets they don\u2019t want taxed immediately \u2014 California would instead take 5% whenever those shares are eventually sold. \u201cIf your startup fails, you pay nothing,\u201d he explained. \u201cBut if your startup is the next Google, you\u2019re giving California a share of your gamble.\u201d He also said founders could submit alternative valuations from certified appraisers reflecting what shares could actually sell for, rather than being stuck with the default voting-control formula.<\/p>\n But that\u2019s pretty small consolation. For startups that aren\u2019t publicly traded, calculating valuations is \u201cinherently difficult,\u201d tax expert Jared Walczak told the Post. \u201cThese are not clear cut\u2014you could come to a very different conclusion not because of dishonesty.\u201d And if the state disagrees with your appraisal, it\u2019s not just the company on the hook; the state can also penalize the person who calculated the valuation. Even with alternative appraisals, founders would still face enormous tax bills on control they hold but wealth they haven\u2019t realized.<\/p>\n Now, if you\u2019ve been under a rock: California\u2019s health care union is pushing a ballot initiative for a one-time 5% tax on anyone worth over $1 billion. The union argues it\u2019s necessary to offset the deep cuts to health care that President Trump signed into law last year, including slashes to Medicaid and ACA subsidies. As originally envisioned, they expect to raise about $100 billion from roughly 200 individuals and the tax would apply retroactively to anyone living in California as of January 1, 2026.<\/p>\n But the resistance is fierce and bipartisan. As reported last weekend by the WSJ, Silicon Valley elite have formed a Signal chat<\/a> called \u201cSave California\u201d that includes everyone from Trump\u2019s crypto czar David Sacks to Kamala Harris mega-donor Chris Larsen. They\u2019ve called the proposal \u201cCommunism\u201d and \u201cpoorly defined.\u201d Some are taking just-in-case measures, too, with Larry Page reportedly dropping $173.4 million<\/a> on two Miami waterfront properties across last month and the first week of the new year, and one of Peter Thiel\u2019s firms leasing Miami office space last month. (Thiel has had ties to Miami for years \u2014 including a home \u2014 but an uncharacteristic press release<\/a> about this new office was seemingly meant to send a message.)<\/p>\n