As Billionaires Debate California's Wealth Tax, a Tech Investor Suggests Other Ways to Raise Revenue

California’s proposed one-time wealth tax on billionaires has triggered a wave of asset relocations by top Silicon Valley figures. Larry Page and Sergey Brin, co-founders of Google, have moved or terminated dozens of California-based limited liability companies to Nevada, a move that reduces their exposure to the potential tax.

The proposal, backed by a healthcare union, would tax residents with a net worth above $1 billion at a rate of 5% of their assets, payable over five years. This threshold would affect about 200 residents, according to the union.

The measure remains speculative but has already prompted action. Peter Thiel, chairman of Palantir, donated $3 million to a group opposing the initiative, and other wealthy tech figures have expressed strong opposition.

Why Did This Happen?

The wealth tax is intended to offset federal budget cuts that affect California's healthcare system, with estimated proceeds of $100 billion over five years.

Critics argue that it is bad policy. Governor Gavin Newsom has stated that the tax would drive billionaires out of the state and damage California's economic competitiveness.

Page and Brin's moves highlight the uncertainty the tax has created. In December, they shifted assets from California to other states, including Delaware and Nevada, in apparent anticipation of the tax's possible enactment.

How Did Markets Respond?

Political and economic uncertainty has led to a financial backlash. The California Business Roundtable, a pro-business lobbying group, expects to spend over $75 million in efforts to defeat the measure.

Some tech leaders, like Jensen Huang of Nvidia, have expressed support for the tax, arguing it is not a major concern for them.

However, others, such as Reid Hoffman and David Sacks, have criticized the proposal. Hoffman called it "horrendous for innovation" while Sacks moved his venture firm to Texas.

What Are Analysts Watching Next?

A tech investor has suggested an alternative to the wealth tax. David Friedberg of All-In podcast highlighted a loophole: many billionaires live off borrowed money against their assets, never paying capital gains tax on those holdings. He proposed that a more effective approach would be to impose capital gains tax on loans taken against untaxed assets. This would address the "buy, borrow, die" strategy of wealth avoidance.

Other ideas include raising capital gains tax or requiring public stock to be taxed when it is already publicly traded.

The debate has also drawn attention to poorly defined aspects of the proposal, such as how voting rights affect ownership valuation for tax purposes. Some founders fear being taxed on shares with disproportionate voting control.

Political leaders remain divided. While Governor Newsom opposes the tax, U.S. Representative Ro Khanna has defended it.

The proposed tax still needs 870,000 signatures to appear on the November ballot. If it does, it will face a public vote and fierce opposition from both the business and political sectors.

The outcome will have significant implications for California's healthcare, education, and innovation sectors. Investors and policymakers will continue to monitor the campaign's progress and any legal or legislative developments.