Nikolas Sargeant
California's proposed 5% tax on billionaires has triggered intense backlash from cryptocurrency industry proponents, who argue the measure would drive wealth and entrepreneurial talent out of the state while failing to address the healthcare funding challenges it aims to resolve.
Introduced by the Service Employees International Union United Healthcare Workers West (SEIU UHW), one of California's largest healthcare worker unions, the 2026 Billionaire Tax Act would impose a 5% annual tax on net wealth exceeding $1 billion to support the state's Medi-Cal program and address a projected $30 billion funding shortfall.
The tax would apply to nearly every form of personal wealth, including stock holdings, private business ownership, real estate, art, luxury goods, and intangible assets like cryptocurrency. The levy is assessed under a mark-to-market system that includes unrealized gains, payable either in a one-time lump sum or spread across five years with a 7.5% annual deferral charge on the remaining balance.
Critics argue this provision would force some founders to sell shares or liquidate assets, potentially reducing their voting power or diluting ownership stakes, as most billionaires hold wealth in illiquid assets rather than cash. Additional concerns center on double taxation, as selling large asset quantities creates taxable events under federal and state capital gains taxes, potentially forcing individuals to sell even more assets just to cover taxes generated by the initial sale.
"To be clear, the Billionaire Tax Act in California is not (just) an unrealized gains tax. It's a 5% across the board confiscation of net worth. It applies even if one has already realized and paid taxes on the entire amount," White House AI and Crypto Czar David Sacks explained, characterizing the measure as wealth confiscation rather than traditional income taxation.
Several high-profile figures in the digital asset space have vocally opposed the measure, arguing it would ultimately result in capital flight and entrepreneurial exodus from California. "A 5% theft of unrealized gains and assets taxes were already paid on is about the most retarded thing I've ever heard. I promise you this will be the final straw. Billionaires will take with them all of their spending, hobbies, philanthropy, and jobs," Kraken co-founder Jesse Powell wrote in a recent X post.
Castle Island Ventures founding partner Nic Carter raised concerns about the measure's broader implications, stating "one time wealth taxes are a signal to capital, like a sovereign default, that more can be expected in the future." Carter questioned US Representative Ro Khanna, a crypto-friendly Democrat who is among the proposal's key supporters, about whether analysis had been conducted on capital mobility responses to wealth taxes.
"I generally like Ro and have interacted with some of his staff who have always been fantastic, but I do wonder, have they done an analysis of capital mobility in response to wealth taxes?" Carter said, suggesting the proposal's economic modeling may be incomplete.
Khanna, conversely, believes the proposal could address inequality and create more sustainable funding for essential services including education, housing, and healthcare. "We cannot have a nation with extreme concentration of wealth in a few places but where 70% of Americans believe the American dream is dead and healthcare, childcare, housing, education is unaffordable," Khanna argued in a December 27 X post.
Dune co-founder and CEO Fredrik Haga pointed to a similar wealth tax policy in Norway, which eventually backfired as wealthy residents departed in large numbers. Haga was among those who exited Norway due to the tax policy. "Taxes on unrealized capital gains have led to more than half of the wealth held by Norway's top 400 taxpayers moving abroad," Haga stated, adding, "Norway has become more equal and made everybody poorer and worse off, just as expected from strong socialist ideas."
As a ballot initiative, the 2026 Billionaire Tax Act would require over 874,000 valid signatures to qualify for a statewide vote and would subsequently face potential constitutional challenges in court before implementation. The signature requirement represents approximately 5% of votes cast in the most recent gubernatorial election, a standard threshold for California ballot initiatives.
The proposal's treatment of cryptocurrency assets has particular significance for California's substantial digital asset industry presence, as the state hosts major exchanges, venture capital firms, and blockchain development companies. If enacted, the tax would require billionaires holding significant cryptocurrency positions to either liquidate portions of their holdings or identify alternative funding sources to meet annual tax obligations on unrealized appreciation.
