A proposed wealth tax in California is causing significant concern among Silicon Valley founders, sparking discussions about potential relocation. The anxiety stems not from the state's existing 5% tax rate, but from the structure of the proposed tax, which targets voting shares rather than actual equity ownership.

The proposed legislation would impact founders who hold dual-class stock structures, where voting power is disproportionate to equity ownership. For example, Larry Page, despite owning approximately 3% of Google, controls roughly 30% of its voting power. Under the proposed tax, Page would be taxed on that 30% voting power, a substantial amount given Google's valuation in the hundreds of billions of dollars. The New York Post reported that one SpaceX alumni founder, currently building grid technology, could face a tax bill at the Series B stage that would eliminate his entire holdings.

This potential tax burden is raising concerns about the future of innovation and investment in California. Founders may be incentivized to relocate their companies to states with more favorable tax policies, potentially leading to a loss of jobs and economic activity in California. The impact could be particularly acute for early-stage companies, where founders often rely on voting control to guide their vision and secure further funding.

David Gamage, a University of Missouri law professor who helped craft the proposal, believes Silicon Valley's reaction is an overreaction. He suggests founders could utilize deferral accounts for assets they don't want taxed immediately, with California taking 5% whenever those shares are eventually exchanged. However, the long-term implications of such deferral strategies and their potential impact on company growth remain unclear.

The situation is evolving, and the future impact of the proposed wealth tax on Silicon Valley remains to be seen. The debate highlights the complex interplay between taxation, innovation, and the location decisions of high-growth companies. As the discussion continues, the tech industry will be closely watching to see if California can strike a balance between revenue generation and maintaining its position as a global hub for technological innovation.