A storm of criticism is brewing in California as crypto heavyweights and other members of the billionaire class voice their opposition to a proposed 5% wealth tax. Dubbed the "2026 Billionaire Tax Act," the initiative aims to levy a one-time 5% tax on the net worth of California residents and trusts exceeding $1 billion.
The proposal, spearheaded by the Service Employees International Union-United Healthcare Workers West (SEIU-UHW), intends to channel the generated revenue, estimated to be around $100 billion from approximately 200 billionaires, primarily into healthcare (90%) and, to a lesser extent, education and food assistance programs (10%). The SEIU-UHW frames the tax as a solution to counteract potential funding cuts to California's healthcare system.
However, prominent figures in the crypto industry and the wider business world are sounding the alarm, arguing that the tax will trigger an exodus of entrepreneurs and capital from the state. Kraken co-founder Jesse Powell, for instance, stated that this tax would be the "final straw," leading billionaires to take their spending, philanthropy, and job creation elsewhere. Bitwise CEO Hunter Horsley echoed this sentiment, suggesting the measure would have a negative overall effect.
Concerns center around the fact that the proposed wealth tax is partly assessed against unrealized gains. This could force billionaires to sell stock or parts of their businesses to cover the tax liability, payable either in one lump sum or over five years with interest. Critics like Castle Island Ventures founding partner Nic Carter and ProCap BTC chief investment officer Jeff Park speculate this could prompt a significant capital flight out of California.
Adding fuel to the fire, reports suggest that tech giants like Larry Page and Peter Thiel are considering reducing their ties to California due to the tax proposal. Bill Ackman joined the opposition, calling California "on a path to self-destruction," and predicting a departure of productive entrepreneurs. Chamath Palihapitiya also weighed in, arguing that the tax would lead to an "exodus of the state's most talented entrepreneurs" who would choose to build companies in less "regressive states," ultimately harming the middle class.
On the other hand, Representative Ro Khanna, a Democrat known for his crypto-friendly stance, has defended the tax. He argues that it will fund crucial programs like childcare, housing, and education, ultimately benefiting American innovation. Economist Emmanuel Saez from UC Berkeley, a supporter of the initiative, claims the tax is designed to prevent avoidance by simply moving out of the state, as it would tax wealth established in 2025.
The "2026 Billionaire Tax Act," if qualified for the November 2026 ballot, would require 874,641 signatures to be placed before voters. It would then need a simple majority vote to pass. The Attorney General has until December 26, 2025, to issue a circulating title and summary for the initiative.
The debate highlights the tension between the state's need for revenue and the potential economic consequences of taxing its wealthiest residents. Whether the initiative will make it to the ballot and, if so, whether it will pass remains to be seen, but the proposal has already sparked a heated discussion about California's future economic landscape. It is important to note that California already has high tax rates for crypto investors. The state's tax rates are the highest in the nation for crypto investors. Unlike the federal system, California offers no preferential rate for long-term capital gains. All gains are taxed as ordinary income regardless of holding period.
