Congressman Ro Khanna proposes a tax on the total net worth of individuals with over $100 million. Unlike an income or capital gains tax, this targets unrealized wealth, forcing the liquidation of assets like stocks to generate the cash needed to pay the tax.

Ben Horowitz warns against wealth taxes on unrealized gains by citing Norway's experience. The policy required founders to pay taxes on their private company's rising valuation with illiquid stock, leading to an exodus of entrepreneurs and effectively dismantling the local tech ecosystem.

The proposed tax on billionaires' assets isn't about the billionaires themselves, who hold a fraction of national wealth. The real goal is to establish the legal precedent for a private property tax. Once normalized, this mechanism can be extended to the middle class, where the vast majority of assets reside.

The proposed wealth tax applies to illiquid assets. A founder of a highly-valued private AI startup could be deemed a 'billionaire' and face a massive tax bill on paper wealth, even if their company never exits or ultimately sells for a much lower price, creating a huge financial risk.

Instead of taxing unrealized gains, which forces asset sales and creates economic distortions, a more sensible approach is to tax the cash that wealthy individuals borrow against their assets. This targets actual liquidity and avoids punishing the long-term investment that builds the economy.

A major flaw in the unrealized gains tax is that it punishes all investors for the actions of a few. A more targeted and less destructive approach would be to tax the loans that wealthy individuals take out against their stock portfolios, targeting the actual cash they use without harming the underlying assets.

A tax on unrealized gains is fundamentally flawed because it requires payment on potential, not actual, money. To pay the tax, investors must liquidate parts of their holdings, like company shares, which can destroy the asset's long-term value and disincentivize investment and company growth.

David Friedberg argues the proposed billionaire tax isn't about targeting the wealthy, but about establishing a legal precedent for the government to audit and tax the private property of all citizens. The real target is the middle class's $170 trillion in assets, not the billionaires' $8 trillion.

Taxing net worth forces small business owners to liquidate assets to pay, as they lack cash reserves. This creates a buyer's market for large corporations, who can then acquire these assets cheaply, leading to increased market consolidation and harming competition.