The setup
California’s Proposition 40 is supposed to be a shiny new revenue machine: a one-time 5% tax on certain billionaires, with the proceeds aimed mostly at health care. But former White House economic adviser Tomas Philipson says the math could get ugly fast if wealthy residents decide to leave, shift investments, or reshuffle where they call home.
The scare tactic? Maybe not
Philipson’s core argument is basically: don’t count the money before it’s in the bank. If the state loses enough income, capital gains, and other tax revenue from people heading for the exit, the new tax could end up being a rounding error — or worse, a net loss.
That’s the part investors care about. California isn’t just a state; it’s a giant engine for startups, venture capital, and high-net-worth spending. If the tax scares off founders or backers, the ripple effects could show up in:
- startup fundraising
- valuation appetite for California companies
- relocation decisions by wealthy founders
- broader sentiment around doing business in the state
The billionaire backlash
This debate has turned into a who’s-who of rich people with opinions. Coinbase CEO Brian Armstrong said he’s considering relocating. Mark Cuban warned it could make investors think twice about backing California startups. And Alphabet co-founder Sergey Brin has also opposed the measure.
That doesn’t mean the tax is dead — far from it. A recent Berkeley IGS poll showed the proposal with a modest lead, which means this thing still has political oxygen. But the bigger picture is simple: if California wants to tax wealth without scaring away the wealth creators, it’s walking a very fine line.
Big picture: this is less about one tax bill and more about the age-old tug-of-war between raising revenue and not annoying the people who generate it.