A proposed wealth tax in California is causing significant unease in Silicon Valley, prompting concerns far beyond the state's existing 5% tax rate. The nervousness stems from the potential impact on founders holding voting shares disproportionate to their actual equity ownership.

The proposed tax targets voting shares rather than the underlying equity. This could have a dramatic effect on founders who utilize dual-class stock structures, common in the tech industry, to maintain control over their companies. For example, Larry Page, despite owning approximately 3% of Google's equity, controls roughly 30% of its voting power. Under the proposed wealth tax, Page would be taxed on that 30% control, a figure representing a substantial portion of a company valued in the hundreds of billions of dollars. The New York Post reported that one SpaceX alumni founder, now building grid technology, could face a tax bill at the Series B stage that would effectively eliminate his entire holdings.

This potential tax burden is raising serious questions about the long-term viability of building and scaling companies in California. The prospect of being taxed on voting power, rather than actual liquid assets, could incentivize founders to relocate their companies and intellectual property to more tax-friendly jurisdictions. This could lead to a decline in venture capital investment and a slowdown in innovation within the state.

David Gamage, a University of Missouri law professor who helped develop 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 instead taking 5% whenever those shares are eventually sold. However, the complexity and potential long-term implications of such deferral strategies remain a concern for many in the tech community.

The future of this proposal remains uncertain. The debate highlights the ongoing tension between the state's need for revenue and the desire to maintain its position as a global hub for technological innovation. If implemented, the wealth tax could reshape the landscape of Silicon Valley, potentially driving founders and companies to seek more favorable environments for growth and wealth creation.