One of the hottest topics in the tech sector is California’s proposed wealth tax aimed at billionaires, and the debate provides insight into their lifestyles.
While Nvidia CEO Jensen Huang said he was “perfectly good“with him, many others are not, including LinkedIn co-founder and top Democratic donor Reid Hoffman, who called it “horrible” for innovation. Meanwhile, venture capitalist Peter Thiel as well as Google co-founders Larry Page and Sergey Brin have already took steps to sever ties with Golden State in case he qualifies for the November ballot and passes.
The proposal calls for California residents worth more than $1 billion to pay a one-time tax equivalent to 5% of their assets. Payment can be made over five years. The union behind the measure, the Service Employees International Union-United Healthcare Workers West, has estimated that the wealth tax could raise $100 billion in revenue and help offset federal cuts in health care spending.
But one tech investor has offered alternatives while acknowledging the existence of a huge loophole that the wealthy are using to skirt paying income taxes.
During a recent episode of All inclusive podcastco-host David Friedberg called the potential ballot initiative more of an asset seizure — one that could be renewed beyond a year and set a precedent for similar measures elsewhere.
“It’s completely reasonable to say that billionaires aren’t paying their fair share of taxes, and it’s completely reasonable to say that very wealthy people aren’t paying their fair share of taxes,” he said. “They pay income tax. But the truth is that many ultra-rich people borrow money against their assets and live off that borrowed money. So they never have to pay taxes by selling what they own.”
Friedberg described the “buy, borrow, die” strategy of avoiding income taxes by living off debts that are not repaid until after the borrower dies. The heirs then settle the outstanding loans by selling the deceased’s assets, and the gains accumulated during their lifetime are not taxable.
According to Friedberg, this is the practice that California’s proposed wealth tax is really trying to attack.
“There is a simple way to solve this problem, which is to impose capital gains tax on them if they borrow against their assets on which they have not paid capital gains tax,” he added. “Very simple. It can solve this problem.”
Another way to approach the issue would be to increase the capital gains tax, Friedberg said, although he is not personally in favor of such a measure.
These levies apply when assets such as real estate or stocks are sold, but he explained that raising them instead of relying on a wealth tax would make it function more like an income tax.
A group of California billionaires also argue about the wealth tax on a Signal chat, according to the The Wall Street Journal. In this back and forth, other alternatives have been proposed, including granting the government illiquid shares in the form of a zero- or low-interest loan for a number of years and taxing shares that are already public.
Opponents of the tax have warned of the impact it could have on economic growth and startups, while supporters point to the AI boom and say California’s ultra-rich would remain among the richest in the world, sources told the newspaper. Newspaper.
The tax has also divided California’s Democratic lawmakers. Gov. Gavin Newsom is against it, while U.S. Rep. Ro Khanna is in favor. But even the congressman acknowledged that the language needs some improvement and does not want illiquid holdings or voting shares to be taxed.
Newsom said The New York Times As of Tuesday, he was working tirelessly behind the scenes against the proposal and that he would continue to oppose it, even if it reached the November ballot.
Palmer Luckey, co-founder of defense technology startup Anduril, said the tax forcing founders to sell large shares of their company whether private shares, commonly used as compensation in startups that are not yet profitable, increase in value.
Meanwhile, Y Combinator CEO Garry Tan recently warned that a provision in the ballot measure would value voting shares as equivalent to equity stakes, forcing holders to pay a much higher tax bill.
“This means that if a founder owns shares representing only 3% of the economic interest but 30% of the voting control (through Class B voting shares), the tax would presume that their ownership interest is at least 30% for valuation purposes, not 3%,” it said in a statement. post on X Friday. “The wealth tax is poorly defined and designed to drive technological innovation out of California. »
