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To hear some Silicon Valley insiders tell it, California is on the verge of economic suicide. This November, Californians will likely vote on a ballot initiative that would levy a one-off tax on the wealth of about 200 of the state’s richest residents. Garry Tan, the CEO of the start-up incubator Y Combinator, posted on X that the measure would “kill and eat the golden goose of technology startups in California.” Investors and tech executives are threatening to leave the state. Governor Gavin Newsom, who has been angling for a centrist presidential pivot, has vowed to “do what I have to do” to stop the initiative.
Many progressives, however, see the billionaire tax as a long-overdue effort to finally force the ultra-wealthy to pay their fair share. Senator Bernie Sanders, for example, calls it a “model that should be emulated throughout the country.” In their telling, hyperbolic claims about the death of innovation and entrepreneurship in California are a smoke screen for the fact that billionaires simply don’t want to pay higher taxes.
The unfortunate reality for progressive backers of the wealth tax is that what billionaires think about the policy, and how they react to it, will determine whether it succeeds. If voters approve the tax, they will be making a huge bet on billionaire psychology. That would be a very high-stakes wager indeed.
The California wealth-tax idea originated as a response to a federal tax cut. Donald Trump’s One Big Beautiful Bill Act lowered taxes for corporations and rich individuals and paid for those cuts in part by reducing Medicaid spending. That left a roughly $20 billion annual shortfall in California’s health-care budget. If left unfilled, that could cause 1.6 million low-income Californians to lose their health care, according to the Kaiser Family Foundation. In response, one of the state’s largest health-care-employee unions teamed up with a group of progressive economists and lawyers to come up with a way to make up the difference: impose a one-off 5 percent wealth tax on California’s billionaires.
The logic is simple enough: The ultra-wealthy, who amass their fortunes by owning assets as opposed to earning wages, pay very little in income taxes. According to calculations by the Berkeley economist Emmanuel Saez, who helped design the proposal, California’s billionaires pay approximately $3 billion to $4 billion a year in state income taxes, or less than 0.2 percent of their collective net worth of $2.2 trillion. He and the other architects of the ballot initiative determined that tapping into this pool of mostly untaxed wealth would be the most economically fair way to raise the money California needs, especially given that those same billionaires had just received a major tax break from Trump. “Right now our tax system effectively fails to tax the superrich,” Gabriel Zucman, another economist involved with the proposal, told me. “If you want to raise a lot of revenue, you need to focus on wealth.”
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One serious objection to imposing a wealth tax at the state level is that it will trigger a process known as capital flight: When faced with the prospect of losing a sizable chunk of their fortune, wealthy individuals might leave the state altogether. If enough people make that choice, a wealth tax could backfire, resulting in lower long-term tax revenues. Many Silicon Valley critics of the ballot initiative have claimed that the proposal would give them virtually no choice but to leave. They say that it would result in massive tax bills that would force founders to sell off their companies, push entrepreneurs into bankruptcy, and ultimately make it impossible to build a successful company in California. “I think the technology industry kind of has to leave the state,” one anonymous venture capitalist told the tech-right publication Pirate Wires. “Because every person running a company will have to look at the math, and they will think, ‘Well obviously that cannot happen because it will literally destroy the company.’”
Already, several high-profile billionaires, including the Google co-founder Larry Page, the Paypal co-founder Peter Thiel, and the Oracle co-founder Larry Ellison, have reportedly begun shifting their assets out of California, and several have threatened to leave if the initiative passes. Andy Fang, a co-founder of DoorDash, claimed on X that the new tax “could wipe me out” and that it would be “irresponsible for me not to plan leaving the state.” (Others, including Nvidia CEO Jensen Huang and Airbnb CEO Brian Chesky, have said that they will remain in California regardless of what happens. “We chose to live in Silicon Valley, and whatever taxes I guess they would like to apply, so be it. I’m perfectly fine with it,” Huang recently told Bloomberg.)
The tax’s designers, however, think they’ve come up with a clever solution to capital flight: a one-off tax that is retroactive, based on a billionaire’s residency status on January 1, 2026. In other words, unless they’ve already fled the state, billionaires won’t be able to move to avoid paying the tax. “At this point, there’s no financial incentive to leave California,” Zucman said. “You’re going to pay the same amount either way.”
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