A proposed ballot measure in California has triggered an unprecedented exodus of billionaires from the state, even before voters have had their say.
The 2026 Billionaire Tax Act, backed by the Service Employees International Union–United Healthcare Workers West, would impose a one-time 5% tax on California residents with net worth exceeding $1 billion. While proponents estimate the measure could generate $100 billion for healthcare and education, the initiative has already sparked an economic migration that may ultimately cost the state far more than it gains.
The proposal represents an extraordinary shift in tax policy. Unlike traditional income taxes that target annual earnings, this measure would tax accumulated wealth, including stocks, businesses, bonds, art, collectibles, and intellectual property. Real estate, pensions, and retirement accounts would be excluded.
For a billionaire with $20 billion in net worth, the tax bill would reach $1 billion, payable over five years with interest. Google co-founder Larry Page could face a $7.2 billion liability, while Oracle’s Larry Ellison might owe approximately $9.6 billion.
The retroactive residency trap
What makes this proposal particularly controversial is its retroactive application date. The tax would apply to anyone who was a California resident on January 1, 2026, regardless of when the measure passes or fails in the November 2026 election.
This strategic timing left California’s estimated 200 to 250 billionaires with almost no advance notice to change their tax residency after learning of the potential tax in December 2025.
California tax attorney Christopher Manes explained the motivation behind this approach succinctly: “The reason they did this is obvious. If they had made the date in November, after passage, you’d have 200 people who could get out in time and save millions of dollars.” The retroactive provision has already triggered legal concerns, with experts suggesting it remains highly susceptible to constitutional challenges.
Despite these legal uncertainties, several high-profile billionaires have taken preemptive action. Public filings show Larry Page moved several business entities out of California in December, including his family office and flu research fund. Peter Thiel announced he had maintained a Miami residence since 2020, while Larry Ellison reportedly sold his California property. Venture capitalist Chamath Palihapitiya estimates that $1 trillion of billionaire wealth has already departed the state, taking with it not only potential wealth tax revenue but also income tax, sales tax, and real estate tax contributions.
Political division and economic warnings
The proposal has created an unusual political rift among California Democrats. Governor Gavin Newsom has called the measure “really damaging” and “bad economics,” telling The New York Times that he believes it will be defeated because “people understand what it does versus what it promotes to do.” Newsom has been working behind the scenes against the initiative, understanding that state-level wealth taxes encourage affected individuals to relocate.
However, other Democratic leaders have supported the measure. U.S. Representative Ro Khanna backs the initiative, though he has acknowledged the language needs refinement and has expressed concerns about taxing illiquid stakes or voting shares. The measure requires 874,641 verified signatures by June 24, 2026, to qualify for the November ballot.
The economic concerns extend beyond simple revenue calculations. California’s Legislative Analyst’s Office projects the wealth tax would generate “tens of billions of dollars” spread over several years. However, the LAO also warns that the state could lose “hundreds of millions of dollars or more per year” in ongoing income tax revenue as billionaires relocate. This represents a permanent loss of recurring revenue in exchange for temporary wealth tax collections.
California already depends heavily on its wealthiest residents for tax revenue. The top 1% of earners account for 40 to 50 percent of the state’s income tax revenue. San Jose Mayor Matt Mahan warned that “driving billionaires out of state might feel good in the short run, but working people will pick up the tab.” This concentration of tax revenue makes California particularly vulnerable to high-earner outmigration, a trend that has accelerated in recent years as residents flee to zero-income-tax states like Texas, Nevada, and Florida.
Implementation challenges and unintended consequences
The practical implementation of the wealth tax raises substantial concerns among business leaders and tax experts. The measure requires taxpayers to value their own assets, which becomes particularly problematic for privately held businesses and startups. While publicly traded stocks have clear market values, determining the worth of a startup or privately held company involves significant speculation and uncertainty.
For founders of dual-class share companies, the situation becomes even more complex. Analysis by the Tax Foundation revealed that the tax could apply to founders’ voting rights rather than their actual economic stake, potentially forcing them to convert controlling shares to common stock and liquidate large portions of their holdings. DoorDash founder Tony Xu owns just 2.6% of his company but controls 57.6% of the vote, which could result in a wealth tax liability exceeding the actual value of his ownership interest.
Defense technology CEO Palmer Luckey warned that the tax “makes founder-led companies practically illegal,” predicting it would force billionaires to sell huge chunks of their companies and pivot toward short-term profit obsession over long-term sustainability. This threatens California’s position as a hub for innovative, mission-driven companies that have historically prioritized growth over immediate profitability.
The measure also includes provisions that could tax wealth that no longer exists. Taxpayers who elect to pay over five years remain liable based on their net worth as measured at the end of 2026. If investments decline or businesses fail during the five-year payment period, individuals could owe substantial tax on wealth they’ve lost, creating scenarios of financial hardship even among billionaires with illiquid assets.
A divided billionaire class responds
The response from California’s billionaire community has been far from uniform. Nvidia CEO Jensen Huang told Bloomberg he is “perfectly fine” with the proposed tax, stating, “We chose to live in Silicon Valley, and whatever taxes they would like to apply, so be it.” Huang’s willingness to accept the tax stands in stark contrast to the aggressive opposition and relocation strategies pursued by many of his peers.
LinkedIn co-founder Reid Hoffman, a major Democratic donor, called the proposal “horrendous” for innovation. Investor Vinod Khosla warned that “California will lose its most important taxpayers and net off much worse.” Tech entrepreneur David Friedberg estimated that $2 trillion of assets has already left California over recent years, highlighting the wealth migration trend that predated this specific proposal but has now accelerated dramatically.
The state’s fiscal situation adds urgency to the debate. California faces projected structural deficits requiring $60 billion or more annually to close budget gaps. Medi-Cal spending alone is expected to rise from $44.9 billion this fiscal year to $51.6 billion by 2029-30. The state carries $497 billion in government debt and $90 billion in pension obligations, ranking among the worst in the nation for both measures.
Proponents argue the tax represents a modest request compared to billionaires’ wealth accumulation. Collective wealth of California billionaires has surged from $300 billion in 2011 to over $2 trillion in 2025. The 5% tax would collect less than what billionaires typically gain in a single year, as their wealth has grown by an average of 7.5% annually after adjusting for inflation.
The broader implications
The California wealth tax debate reflects tensions playing out across the nation regarding wealth inequality and tax fairness. Supporters note that billionaires paid only 24% of their true economic income in taxes between 2018 and 2020, compared to a 30% national average for all Americans. The proposed measure directs 90% of revenues to healthcare services, with the remaining 10% split among education, food assistance, and tax administration costs.
Critics counter that the measure addresses symptoms rather than underlying problems. Some experts have suggested alternative approaches, including charging capital gains tax when billionaires borrow against untaxed assets, a practice known as “buy, borrow, die” that allows wealth to pass to heirs without ever being subject to income tax. Other proposals include raising capital gains tax rates or requiring taxpayers to provide the government with illiquid stock as a zero or low-interest loan.
Whether the 2026 Billionaire Tax Act reaches the ballot and passes remains uncertain. What has already become clear is that even the possibility of such a measure has reshaped California’s economic landscape. Billionaires have demonstrated they are indeed “the most portable class in America,” capable of mobilizing teams of lawyers and accountants to quickly establish new residencies when faced with potentially massive tax liabilities.
The ultimate impact may serve as a cautionary tale for other states considering similar measures. California’s experience suggests that wealth taxes, particularly those applied at the state level, face inherent challenges. Mobile high-net-worth individuals can avoid such taxes through relocation, potentially leaving states with reduced long-term tax bases. The temporary revenue boost from a one-time wealth tax may prove pyrrhic if it triggers permanent losses of ongoing income, property, and sales tax contributions from departed billionaires and the economic activity they generate.
As California voters prepare to decide this measure’s fate in November, they face a fundamental question about tax policy and economic strategy. The state must weigh the immediate appeal of substantial one-time revenue against the long-term risk of accelerating an exodus of wealth creators, investors, and job generators.
In an era of remote work and increasing geographic mobility among the wealthy, that calculation has never been more complex or consequential.