A proposed wealth tax in California is causing significant concern among Silicon Valley founders, potentially triggering a wave of departures from the state. The anxiety stems not from the existing 5% tax rate, but from the unique structure of the proposed tax, which targets voting shares rather than actual equity ownership.

The proposed legislation would disproportionately impact founders who hold significant voting power through dual-class stock structures, common in tech companies. For example, Larry Page, despite owning approximately 3% of Google's equity, controls roughly 30% of its voting power. Under the proposed tax, Page would be liable for taxes on that 30%, a substantial sum given Google's valuation in the hundreds of billions. 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 completely deplete his holdings.

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 prospect of future tax liabilities on voting shares is creating uncertainty and prompting founders to consider relocating to states with more favorable tax environments.

This potential exodus could have far-reaching implications for California's tech industry. The departure of founders and their companies could lead to a loss of innovation, investment, and job creation within the state. Furthermore, it could weaken California's position as the global hub for technology and entrepreneurship.

The situation highlights the ongoing debate surrounding wealth taxation and its potential impact on economic activity. While proponents argue that wealth taxes can help address income inequality and fund public services, critics contend that they can discourage investment and drive away high-net-worth individuals and businesses. The future of this proposed tax, and its ultimate impact on Silicon Valley, remains uncertain, but the current level of concern suggests a significant shift in the landscape is possible.