California did not become the world’s fifth largest economy by accident. Silicon Valley wasn’t built by regulators. Hollywood wasn’t turned into a global storytelling powerhouse by government planning. California was built by entrepreneurs, risk takers and innovators who believed in capitalism and the simple American ideology that if you work hard, take risks and build something of value, you should be rewarded.
That’s why California’s recently proposed billionaire tax should alarm anyone who still believes capitalism works. This proposal is not just a tax increase. It is a fundamental shift away from the system that makes Americans prosperous as a nation.
Under the plan, California would impose a one-time tax on residents with a net worth of more than $1 billion that would target “wealth” rather than income. That includes unrealized profits, i.e. stock ownership, share capital of private companies and illiquid assets that exist on paper. Wealth isn’t always in checking accounts. Proponents call it fairness, but it is a tax on success before success is ever realized.
This is the part that most politicians ignore. Billionaires don’t necessarily sit on piles of money. Much of their wealth is tied up in corporations, real estate stocks and their private businesses. When the government demands a huge check based on paper valuations, the only way to pay it is to sell assets.
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Elon Musk announced the launch of his third ‘America Party’ on Saturday via X. (Francis Chung/Politico/Bloomberg via Getty Images)
And that’s where the real damage begins for the people who rely on these billionaires to create jobs so they can become millionaires.
If you force someone to sell public shares, the markets can absorb them. But when you force the sale of shares of private companies, you often force a founder to sell part or all of their company ahead of schedule. That could mean selling them to private equity, applying leverage, cutting costs or laying off employees to generate liquidity.
In other words: a tax aimed at ‘the rich’ does not only affect the balance sheets. It hits payrolls.
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Capitalism works because it encourages innovation and growth. It rewards people for building businesses, hiring workers and reinvesting profits. When you start taxing wealth simply because it exists rather than on income, profits or transactions, you turn that incentive structure on its head. The message becomes clear for entrepreneurs. If you build too much and succeed too much, the government will punish you and possibly prematurely dismantle what you have built.
We’ve already seen how this movie ends for other Californians.
Take billionaire entrepreneur Elon Musk, who moved Tesla’s headquarters from California to Texas. Musk didn’t leave because he doesn’t like the sun or beaches. He left because regulations, rising taxes and a growing hostility to business innovation made it harder to build and scale businesses. When the world’s most influential entrepreneur and job creator votes with his feet, policymakers must listen.
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He wasn’t the only one. Host Joe Rogan moved his podcast empire from Los Angeles, citing concerns about taxes, governance and quality of life. Larry Ellison moved Oracle’s headquarters from California. Just look at Sergey Brin and Larry Page and their recent moves to cut ties with California. Even liberal Hollywood elites are quietly establishing residences in Nevada, Texas or Florida, while maintaining second homes in Malibu.
This is no coincidence. It’s cause and effect.
If you force someone to sell public shares, the markets can absorb them. But when you force the sale of shares of private companies, you often force a founder to sell part or all of their company ahead of schedule.
Entrepreneurs don’t just create wealth for themselves. They create jobs, supply chains, tax revenues and philanthropy. When government policy forces founders to sell companies prematurely just to pay a wealth tax, it’s employees who pay the price long before billionaires do.
The danger does not stop at California’s borders. Other blue states are watching closely. If California can tax unrealized wealth, what’s to stop New York, Illinois or Massachusetts from doing the same? Today they are billionaires. Tomorrow the founders will be worth $100 million. Then it’s the family business owners who have spent decades building businesses, only to be taxed on paper valuations that they haven’t converted into cash.
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Supporters argue the tax would only affect a few hundred people. That misses the point. Policies are not judged by the number of people they affect. They are judged based on the incentives they create.
Capitalism depends on the promise that if you take risks, build something meaningful, and create value for others, you can be rewarded with the pot of gold at the end of the rainbow.
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California once understood that better than almost anywhere else in the world. This billionaire tax suggests the state is forgetting what made it a true Golden State. Since COVID-19, you’ve seen a huge shift in both individuals and businesses, showing that the Golden State may not be so golden anymore.
The lesson is simple. Money always chases something. When success is treated as an obligation, the money disappears. And when capitalism is undermined, everyone pays the price, not just the billionaires.
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