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.

The implementation of wealth taxes could burst market bubbles. Since these taxes must be paid in cash, holders of illiquid assets (like stocks or real estate) are forced to sell. This forced selling creates downward pressure on prices, potentially triggering a broader market downturn.

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.

Billionaire wealth is largely illiquid and tied to asset values. A large-scale wealth tax would force mass sales, crashing the market value of those assets. The money is only 'there' on paper until you try to actually collect it, at which point its value collapses.

The proposed Dutch law exempts small startups but triggers a massive tax liability once they cross a threshold (e.g., €30M revenue). This creates a "tax cliff" where investors suddenly owe 36% on years of accumulated paper gains in a single hit, forcing a potential fire sale or crippling debt.

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 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 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.