California’s wealth tax is roiling Silicon Valley — and it isn’t even the 5% rate that has techies furious and seriously contemplating leaving the Golden State. It’s what’s in the fine print.
The proposed “billionaire tax” treats voting shares as if they were actual ownership, taxing founders on control they hold rather than wealth they actually possess. It punishes innovators for maintaining control of their companies and discourages them from launching startups where they have a majority say.
“The treatment of voting shares for founders is so onerous it’s unclear if this was intended,” Jared Walczak, a state tax expert at the Tax Foundation, told me. “There are significant consequences even if they’re unintended.”
The issue affects every tech founder who retained control through dual-class stock — which is a key part of the reason Google co-founders Larry Page and Sergey Brin left Google in 2019.
While Page holds around 3% of Google’s shares, he controls about 30% of its voting power. Under the proposed tax, he’d owe on the 30% rather than the much smaller percentage of the company he actually owns.
For startups, it is both expensive and extremely complicated to calculate the tax burden. “For a startup that isn’t publicly traded, calculating a valuation is inherently difficult,” Walczak said. “These are not clear cut — you could come to a very different conclusion not because of dishonesty.”
If the state disagrees with the way a company calculates its valuation, it’s not just the company that is on the hook but the person who calculated that valuation — and the state is threatening to slap a penalty on the person who miscalculated.
Joe Malchow, founding partner at Bay Area venture capital firm Hanover, told me he’s already seeing how devastating the proposed tax would be for young founders poised to solve some of California’s biggest problems, like energy shortages.
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“Last week we launched a company of SpaceX alumni building powerful grid-forming technologies that unburden California’s grid,” he said. “We granted the founder stock with 10 votes for every share because that is what you do when you’re building something that helps millions of people but might hurt a few entrenched business interests.”
The founder’s voting shares represent 30% control of a company valued in the billions — meaning the tax would hit him on billions of dollars in phantom wealth, even though he owns a much smaller economic stake and hasn’t sold a single share.
“At the Series B, this founder would be taxed an amount that vitiates his entire holdings,” Malchow added. “Like homeowners in 2008, he would instead hand over the keys and walk away. Actually, handing over the keys and walking away is exactly what his lower level employees would then have to do with their actual homes.”
Garry Tan, who runs Y Combinator, the most prominent startup incubator in the state, went viral earlier this week for calling out the fact that Larry and Sergey “can’t stay in California since the wealth tax as written would confiscate 50% of their Alphabet shares.” He added the proposal was “poorly defined and designed to drive tech innovation out of California.”
The tax won’t hit the ballot until November, but it would be levied retroactively based on residency as of January 1, 2026. That fact led some founders of trillion-dollar companies to flee early, chilling the launch of new businesses. Since January 1, an estimated $1 trillion has left the state with reports that both Page and Brin have left.
Some notable California founders haven’t expressed disapproval — Nvidia founder Jensen Huang told Bloomberg TV he would be “perfectly fine” if the tax is enacted — but even left-wing figures like Governor Gavin Newsom have vowed to stop it.
“Business founders value control of their business just as much, if not more, than their wealth,” Walczak said. And the idea of the state going after them for both? “It’s hard to imagine a more potent mix of factors to incentivize them to leave.”
