California has a lot going for it. Beautiful beaches, mountains, and parks. Awesome weather. And the most powerful startup and innovation ecosystem in the world. And for some reason, the state of California is working hard to destroy its entrepreneurial hub of prosperity and growth with a new punitive tax that has been all the talk on X in recent weeks.
The confiscatory tax is a plan to target “billionaires’ and take 5% of their wealth away. Effectively, the state bureaucracy would empower public employees to hunt for unrealized gains in securities and other holdings for a one-time fee. This “wealth tax” has been tried before and failed every time, but for some reason, California believes it will get it right this time and generate more revenue for public services by fleecing the affluent.
The problem is an obvious one. People can vote with their feet and move elsewhere, and flee the tax policy.
A handful of states currently have neither state income tax nor capital gains tax. Florida and Texas are top of mind. Any mid-level student of Economics understands the phenomena. It is outlined in the Laffer Curve, which describes how excessive taxes chase people away and, eventually, become so burdensome that they push tax revenue down, thus having the exact opposite effect of its intentions. Arthur B. Laffer first shared the concept in 1974, which was later used to drive economic growth.
If California’s goal is to kill the Golden Goose that keeps on giving and to lower state tax revenues, this new policy will be a big success, even before it is enacted.
Billionaire investor Chamath Palihapitiya posted on January 9th that the wealth that has fled California due to the looming tax had topped $700 billion. A few days later, he updated his number, indicating the total was over $1 trillion.
“More calls from friends. The total wealth that has left California is now $1T. We had $2T of billionaire wealth just a few weeks ago. Now, 50% of that wealth has left – taking their income tax revenue, sales tax revenue, real estate tax revenue and all their staffs (and their salaries and income taxes) with them. In other words, by starting this ill conceived attempt at an asset tax, the California budget deficit will explode. And we still don’t know if the tax will even make the ballot. California billionaires were reliable tax payers – 13.3% every year. They were the sheep you could shear forever. Now, California will lose this revenue source FOREVER. Unless this ballot initiative is pulled, we will not stop the billionaire exodus. With no rich people left in California, the middle class will have to foot the bill.”
Some of the names of wealthy innovators who have fled to other locales have been reported in the press. Google (Alphabet) founders Larry Page & Sergey Brin have exited the Golden State. Peter Thiel has supposedly set up his venture capital fund with an office in Miami. There are others.
Once this money is gone, it does not come back, and the new home state is the beneficiary. And this means that California will no longer generate revenue on its already super-high state income tax, which is the highest in the US at at 13.3%, on these tax refugees.
Garry Tan posted on X that the tax is even worse when you look more closely. According to Tan, the tax targets voting control in private companies, meaning that if a founder controls 70% of the voting shares but only 5% of the total shares, the state will target the higher percentage to establish valuation, ignoring economic reality, potentially bankrupting the shareholder.
Founder David Friedberg says that “California started with the Gold Rush and might end with the Golden Exit.” He shared that more people are planning to flee – even those who have not yet “made it” but hope to do so in the future:
“A private poll was conducted amongst affected individuals a few days ago, and 80-90% surveyed said they have already left CA in 2025 or will leave in 2026 if the ballot measure looks likely to pass. $2-2.5T of assets gone, representing about $20B of annual revenue for the state government. and likely hundreds of thousands of jobs now at risk. Less reported is the bigger exodus underway from folks who are NOT directly affected but worry (as they should) that this law will quickly transition from billionaires to everyone else…”
Friedberg reports that many businesses are actively looking to exit California, as the punitive tax policy will likely spread, especially when state bureaucrats recognize it is a failure and then go after those less fortunate to fill their coffers. This is how it works.
Prominent VC Ben Horowitz, of Andreessen Horowitz, said the “California wealth tax is the ‘best strategy’ to dismantle Silicon Valley that he’s ever seen.”
AngelList co-founder Naval Ravikant notes that ecosystems take decades to grow but only an instant to burn down. He declares:
“If you are the founder of a highly valued illiquid startup, set some time aside and read this entire article. The act is designed to bankrupt you and to personally punish any appraiser or accountant who disagrees.”
He adds:
“If you are a California-based founder of a high-flying company, you need to pause your fundraising.”
“An existential threat to California startups”
The article Ravikant references is from the Tax Foundation, which anticipates the outcome will be fewer jobs, less investment, and lower tax revenue.
So why, on Earth, do any elected or appointed policymakers or academicians want to destroy California? It simply does not make sense.
Congressman Ro Kahna, the Democrat representative from Silicon Valley, has supported the policy. He simply believes that people will not leave. It is all a bluff. Innovators and the wealthy are too entrenched in the ecosystem; there is too much talent and access to capital for people to seek to dodge the tax. Of course, this ignores the empirical evidence that billions of dollars have already left.
Another aspect of the excessive tax policy is that the state of California is a mess. Rampant claims of fraud, examples of failed programs – like the homeless debacle, and a fast train to nowhere, highlight a public sector that cannot succeed no matter how much taxpayer money they take from the population.
California Congressman Kevin Kiley, one of the few Republicans in the state, points to the fact that California has mismanaged its finances.
“Newsom has announced a $348.9 billion budget. That’s $147.5 billion larger than when he took office, a 73.2% increase. Spending has grown 2.5 faster than the rate of inflation. This isn’t normal, even for blue states…Meanwhile, the state’s infrastructure and schools remain subpar, cost of living is higher than anywhere, and we lead the nation in unemployment, homelessness, and poverty.”
Please make it make sense… You simply can’t.
Compare California’s public expenditures to those of competing state Florida, and you grasp the size of the problem.
In 2024, California’s total expenditures were approximately $413.8 billion, while Florida’s were around $119.1 billion. Florida reports a budget surplus of around $7 billion and total reserves exceeding $17 billion as of late 2024/early 2025. Depending on the estimate, California struggles with significant budget shortfalls, with projections for the 2024-25 fiscal year ranging from approximately $45 billion to over $68 billion. Remember, Florida has no income or capital gains tax.
Yes, California has a larger population at 39.4 million (and declining) versus Florida’s 23.4 million (and growing), but on a per capita basis, Florida spenta round $4,967 per capita in 2022 compared to California’s $11,407 the same year.
So maybe California should first get its books in order, cut costs, stop the fraud, end the financing boondoggles, and return to the basics of supporting economic growth and wealth creation. All that takes is leadership with new ideas, rather than pursuing the same failed policies of recent years. And then maybe the state would not be looking to enact a felonious tax policy to finance the madness.
So a student of the obvious would say this wealth tax is bad policy, which will drive an outcome the opposite of what it claims to achieve. So stop it now. But the Golden State is predicted to approve the new tax regardless of the inevitable outcome.
Founder Jason Lemkin explains that the new confiscatory tax only requires a 50%+1 vote. SEIU (Service Employees International Union) + CTA (Service Employees International Union) have done this before—Prop 55 won 63% in 2016. He quotes Vinod Khosla, who declares:
“Even people who don’t expect this initiative to pass are still planning to leave because there will be another one.”