Langshaw | California’s proposed wealth tax is short-sighted
We sit at the center of an ecosystem built on research, risk-taking and the movement of ideas and capital. Silicon Valley is not just a backdrop to our education; it is the founding ground of companies that grew from student projects into global firms, and of innovations that reshaped entire industries. That proximity makes abstract policy debates tangible. When incentives shift, we see the effects not years later, but in real time. From that vantage point, California’s latest wealth tax proposal deserves close scrutiny.
The 2026 Billionaire Tax Act is a voter-initiated ballot measure proposing a one-time 5% tax on individuals with a net worth exceeding $1 billion. The measure is designed to create a reserve fund for Medi-Cal in response to anticipated federal funding cuts. Supporters frame the proposal as an answer to an increasingly K-shaped economy, in which high-skilled, asset-owning households accumulate wealth while large portions of the workforce face stagnating wages and rising costs of living. That diagnosis is not unfounded. Inequality in the state has widened, and the gains of recent years have been unevenly distributed. The impulse to respond is understandable. Sound economic policy, however, demands more than moral clarity. It requires an honest assessment of incentives, mobility and unintended consequences. By those measures, this proposal risks doing lasting harm to California’s economy while offering only limited fiscal payoff.
At the center of the problem is mobility. This bill applies only to billionaires — a tiny, but uniquely mobile share of Californians. Billionaires are not merely high earners, they are among the most geographically and financially flexible state residents. Their assets are diversified, their businesses often global and their actual work independent from location. California has already seen how quickly behavior can change when policy signals shift. In response to high corporate taxes, Oracle relocated its headquarters to Texas. Tesla followed.
The signals are now personal. According to The New York Times’ recent reporting, Stanford alumni Larry Page M.S. ‘98 and Sergey Brin M.S. ‘95, billionaire co-founders of Google, have both taken steps to reduce their California taxation in direct response to this proposal. These decisions are not merely symbolic. While some California billionaires with deep personal, operational or ideological ties may publicly support or are willing to absorb the tax, economic policy cannot be built around the most institutionally anchored cases. When the intellectual center of gravity for innovation departs, they take with them the intellectual capital and mentorship that fuels the next generation of Stanford startups and risk lowering California’s tax revenue further.
Proponents of the tax argue that the ultra-wealthy benefit disproportionately from California’s infrastructure, workforce and institutions, and therefore should contribute more. That claim has merit. Yet it is incomplete. California already relies heavily on a narrow slice of taxpayers. The top 1% of Californian earners pay about 40% of the state’s personal income taxes, making the system highly progressive but also highly sensitive. When a small number of mobile taxpayers account for such a large share of revenue, policies that encourage exit erode the base they are meant to tap. The Legislative Analyst’s Office (LAO) has already warned that while the tax might provide a temporary windfall, the resulting “exodus” could lead to an ongoing decrease in state income tax revenues of hundreds of millions of dollars annually.
The tax design also poses serious economic concerns. Because it is assessed on net worth rather than income, it concerns assets that may be illiquid and unrealized. The bill’s valuation rules are particularly aggressive. Y Combinator CEO Garry Tan ’03 recently observed that the act as proposed creates a “valuation trap” for founders with supervoting shares; by equating voting control with economic ownership, the state could tax a founder’s 3% stake as if it were 30%, effectively taxing wealth that does not exist. Taxing wealth on paper rather than income actually received can force asset sales, distort investment decisions and create valuation disputes difficult to administer fairly. Broadly, this framework signals a shift away from realization-based taxation, introducing uncertainty into long-term planning for entrepreneurs and founders who already operate in a highly competitive global environment.
The proposal’s legal structure warrants scrutiny as well. The proposal effectively treats individuals as taxable California residents even after they have left the state by tying liability to prior residency within a look-back period beginning on Jan. 1 of this year, although the bill will be voted on in November. This resembles an exit tax that retroactively attributes residency. Such an approach raises due process concerns that are likely to invite litigation. The tax’s reliance on complex, subjective asset valuations further increases the risk of arbitrary enforcement and unequal treatment. Even if courts ultimately uphold the measure, the uncertainty itself matters. Capital responds not only to tax rates, but also to predictability.
The LAO estimates that the proposed tax could raise tens of billions of dollars if enacted, as a one-time infusion rather than a recurring source of revenue. While that figure is substantial in isolation, it must be understood in context. California’s annual budget exceeds $300 billion, and over a ten-year period, the state’s spending commitments run into the trillions. This is not to deny California’s real budgetary constraints. The state faces rising healthcare costs and is projected to lose up to $19 billion in annual federal funding for Medi-Cal due to recent federal budget legislation. However, addressing this massive shortfall with a one-time tax on a handful of individuals risks creating a dangerous fiscal cliff. When the temporary reserve fund inevitably runs dry, the structural drivers of the deficit will remain, but the revenue base will have been drained. In that sense, the proposal risks offering fiscal catharsis rather than fiscal stability.
A more durable approach would focus on stabilizing revenue by reducing reliance on volatile capital-gains receipts and exercising greater discipline on the spending side by aligning long-term commitments with more predictable revenue streams. These measures lack the rhetorical punch of a wealth tax, but they address the structural sources of inequality and fiscal stress rather than their most visible symptoms.
Silicon Valley, an ecosystem built over decades and deeply intertwined with Stanford, is not a fixed resource. It exists because people choose to build here. Policies that implicitly assume choice is costless misunderstand how competitive advantage is lost. California’s prosperity has never come from punishing mobility, but from attracting talent and capital in the first place.
The proposed wealth tax may satisfy a political moment. As economic policy, it risks trading long-term vitality for short-term symbolism. For a state whose success has depended on openness and innovation, that is a trade worth approaching with caution.
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