A proposed 5% tax on California billionaires has sparked intense debate, with many crypto industry advocates arguing that it would drive wealth out of the state while failing to address the underlying problems in the healthcare system it aims to fund. The Billionaire Tax Act 2026, introduced by the Service Employees International Union United Healthcare Workers West (SEIU UHW), seeks to impose a 5% annual tax on net assets over $1 billion to support the state’s medical program and cover a projected $30 billion funding shortfall.
The tax would apply to a wide range of personal assets, including stock holdings, private business ownership, real estate, art, luxury goods, and intangible assets such as cryptocurrencies. Critics argue that this could encourage wealthy residents to leave the state, as the tax would be calculated using a mark-to-market system that takes into account unrealized gains. This provision would require some founders to sell shares or liquidate assets, potentially reducing their voting rights or diluting ownership.
Concerns Over Double Taxation and Capital Mobility
David Sacks, White House AI and crypto czar, explained that the tax is not just a tax on unrealized gains, but a “blanket 5% confiscation of net assets” that applies even if the individual has already realized the entire amount and paid taxes. This has raised concerns over double taxation, as the sale of large amounts of assets constitutes a taxable event under federal and state capital gains taxes. Kraken co-founder Jesse Powell argued that the measure would be “the final straw” for billionaires, who would take their spending, hobbies, philanthropy, and jobs with them if they leave the state.
Others, like Castle Island Ventures founding partner Nic Carter, have raised concerns about the measure’s impact on capital mobility. Carter questioned U.S. Rep. Ro Khanna, a crypto-friendly Democrat who supports the proposal, asking if his staff had conducted any capital mobility analysis in response to property taxes. Khanna believes that the proposal could help tackle inequality and lead to more sustainable financing of essential services such as education, housing, and healthcare.
Lessons from Norway and the Potential Consequences
Dune co-founder and CEO Fredrik Haga pointed to similar wealth tax policies in Norway that ultimately backfired, as the rich left the country in large numbers. Haga, who was one of those who left, noted that “taxes on unrealized capital gains have caused more than half of the wealth of Norway’s 400 largest taxpayers to move abroad.” This has led to Norway becoming “more equal, leaving everyone poorer and worse off,” as Haga put it. As a ballot initiative, the Billionaire Tax Act of 2026 would require over 874,000 valid signatures to qualify for a statewide vote and then overcome potential constitutional challenges in court before it can become law.
For more information on California’s billionaire tax proposal and its potential implications, visit https://crypto.news/californias-billionaire-tax-proposal-draws-backlash-from-crypto-proponents/
