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Why ‘Progressive’ Ro Khanna Wants to Lend Money to Billionaires
California's Prop. 40 isn’t just a “tax.”
There are a lot of problems with California’s proposed “billionaire tax,” Proposition 40. One of the biggest is how a billionaire might actually pay it.
Tech founders usually have their wealth tied up in their companies. And they could not easily sell their shares to pay massive tax bills.
A founder can own, say, 20% of a private company valued at several billion dollars, and therefore be a billionaire on paper, while having nowhere near $50 million in cash, much less the liquidity necessary to pay a 5% wealth tax without selling or borrowing against the company.
So how would such a billionaire pay it?
This week, while debating billionaire Mark Cuban on social media, Rep. Ro Khanna came up with a terrible idea: that the government should somehow lend money to billionaire entrepreneurs to pay the wealth tax.
The founder would pledge shares, California would finance the tax payment through a loan, and roughly 10 years later the founder would either pay off the loan, or the state government would seize the shares.
And so Prop. 40 isn’t just a “tax.” It’s something close to compulsory state ownership of growing businesses.
Cuban responded that Khanna’s proposal would force founders and investors to leave California to avoid being forced to take out massive loans or give up their companies. Cuban added that he himself would tell founders to leave California before he would invest a penny in their companies, if the measure passes this November.
There would be other effects as well. Let’s suppose you’re a recent Stanford graduate, like myself, and your startup is worth $300 million, and growing rapidly. You don’t wait until the morning Forbes declares you a billionaire to think about California tax residency. You leave ASAP.
Politics
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