The proposed California "entrepreneur's tax" is not a one-time levy on billionaires. It's viewed as the first step toward an annual tax on paper wealth, with thresholds planned to drop to $25M. This would impact founders with illiquid equity post-Series B, forcing a mass exodus before an IPO.

California is on the verge of a massive tax revenue surge from upcoming IPOs of companies like SpaceX and OpenAI. However, a proposed wealth tax on illiquid assets is causing tech leaders to relocate, potentially costing the state the very economic boom it needs to balance its budget.

A proposed wealth tax in California triggered a significant flight of capital and high-net-worth individuals, even without becoming law. The key factor was the failure of politicians to uniformly condemn the proposal, which was perceived as a threat to fundamental property rights, signaling a hostile business climate.

Rather than increasing revenue, wealth taxes incentivize the wealthy to leave, shrinking the tax base. As seen in New York, this forces the government to eventually broaden the tax to lower income brackets to cover the deepening deficit.

When states or nations impose wealth taxes, the wealthy often relocate, as seen when New York's governor told them to leave. This erodes the tax base. Since government spending rarely decreases, officials are forced to broaden the tax to lower income brackets, ultimately increasing the burden on the middle class.

The mere proposal of a wealth tax, even before it passes, inflicts massive fiscal damage. Analysis by the Hoover Institution shows the threat alone led to high-earner exodus and faulty revenue projections, resulting in a net negative financial impact on the state.

A proposed California wealth tax is reportedly causing a pre-emptive capital flight. Crucially, the exodus includes individuals not directly targeted, who fear the law's scope could easily expand. This demonstrates how the mere threat of a policy can trigger significant economic consequences before it's even enacted.

The historical record shows that wealth taxes cause capital flight on such a large scale that they ultimately reduce a government's total tax revenue. For example, after France introduced one, 42,000 millionaires left with €200 billion, forcing the government to later abolish the tax.

Threatening to confiscate wealth from the most mobile people incentivizes them to leave. This capital flight has already begun in response to the proposal, proving such policies ultimately reduce the state's long-term tax revenue by driving away the very people they aim to tax.