⚖️ Billionaires leaving California

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The Billionaire Tax Initiative and California’s Wealth Exodus

A contentious new ballot initiative led by California’s healthcare unions has triggered a high-profile exodus of the state's wealthiest residents, including tech icons like Larry Page and Peter Thiel. The proposal seeks a one-time 5% wealth tax on individuals with a net worth exceeding one billion dollars to offset deep federal cuts to Medicaid and ACA subsidies signed by the Trump administration. If successful, the measure aims to raise approximately $100 billion from a small group of roughly 200 individuals and would apply retroactively to anyone residing in the state as of January 1, 2026. Despite fierce, bipartisan opposition from the Silicon Valley elite and Governor Gavin Newsom, who has vowed to defeat the measure, the initiative is currently gathering the 875,000 signatures required to reach the November ballot.

The Voting Control Conundrum: Redefining Taxable Wealth

For founders, the most alarming aspect of this proposal is the specific mechanism used to calculate taxable assets, which shifts the focus from economic ownership to voting power. Unlike traditional tax frameworks that assess the market value of held equity, this legislation would tax founders on the percentage of the company they control through dual-class stock structures. This means a founder who owns a small fraction of a company’s actual equity but retains majority voting control could face a tax bill based on the total value of that control, potentially leading to a tax liability that exceeds their liquid net worth. While the proposal's architects suggest that founders could open deferral accounts to pay the tax only when shares are eventually sold, the inherent difficulty in valuing private companies and the risk of state-imposed penalties for "incorrect" appraisals create a massive financial cloud over the startup ecosystem.

Strategic Relocation and the Importance of Valuation Resilience

The practical impact of this legislative push is already being felt as founders weigh the cost of remaining in California against the risk of a catastrophic tax event at the Series B or C stage. If your startup utilizes a dual-class share structure to maintain founder control, you must immediately consult with specialized tax counsel to model your potential liability under this "voting-control" formula. You should also evaluate your company's valuation resilience by ensuring you have access to certified appraisers who can provide defensible, alternative valuations that reflect the actual marketability of your shares rather than just their governing power. My advice is to monitor the signature-gathering process closely and consider the "just-in-case" relocation measures currently being adopted by industry leaders, as the retroactive nature of the tax means that waiting until the November vote may be too late to protect your assets.

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