SAN FRANCISCO—California’s proposed 5% wealth tax on billionaires is igniting fierce backlash from Silicon Valley’s elite, with tech founders openly threatening to relocate amid fears it could cripple innovation and drain state revenues. The ballot measure, aimed at funding healthcare for 14 million low-income residents, targets unrealized gains and would apply to individuals with net worth exceeding $50 million starting in 2027 if approved by voters in November 2026. Proponents frame it as a bold step toward equity, but critics, including venture capitalist Palmer Luckey, warn it signals the end of California’s dominance in tech.

The initiative, backed by activists and labor groups, would impose the levy annually on the wealthiest, potentially generating $15 billion yearly according to estimates from its supporters. Yet, as word spreads, high-profile figures are signaling plans to depart. Peter Thiel has explored spending more time outside the state, while Google co-founder Larry Page is weighing similar moves, sources told The New York Times. Elon Musk’s prior exit from the state, cited by Chamath Palihapitiya on X, already cost California billions in taxes from him and his employees.

Ballot Measure Mechanics Unpacked

Funded by tech billionaire Marc Andreessen’s rival, the measure defines wealth broadly, including stocks, real estate, and private company equity—even if unsold. Tech founders like Luckey, who built Oculus VR, decry it as punishing success: ‘This would force me to leave the state I love,’ he posted on X, as reported by Fox Business. Palihapitiya detailed the peril for entrepreneurs on X, outlining a scenario where a founder with $1 billion in illiquid equity faces a $50 million hit, regardless of cash flow.

Governor Gavin Newsom faces a political tightrope. Having resisted tax hikes throughout his tenure, he now grapples with budget deficits exceeding $70 billion, per Politico. Progressives push for the tax to close gaps in Medi-Cal funding, but Newsom’s team signals caution, wary of alienating donors and voters in a state already losing residents to lower-tax havens like Texas and Florida.

Entrepreneurs’ Exit Strategies Emerge

Silicon Valley veterans are mapping escapes. Thiel, a PayPal co-founder, is considering Texas bases for his firms, while Page has curtailed California travel, according to Daily Mail. Crypto leaders echo the alarm; one executive warned on X of ‘capital flight undermining California’s economy,’ as noted in CryptoNews. Palihapitiya predicted on X that the tax ‘will kill entrepreneurship,’ using a hypothetical founder example facing ruin from market dips.

The measure’s one-time-like impact belies its annual nature, escalating for those over $1 billion in wealth. Founders with paper fortunes in startups argue it ignores liquidity risks: ‘One market correction and I am screwed for life,’ one anonymous tech leader told Fortune. Historical precedents loom; Massachusetts’ millionaire tax flight in the 1990s cut revenues by 40%, a cautionary tale cited by opponents.

Fiscal Projections and Hidden Costs

Supporters claim $15 billion in revenue, but skeptics forecast shortfalls from exodus. California’s top 1% already pay half the income tax; losing 100 billionaires could erase $3.5 billion annually, per Deseret News analysis. Palihapitiya highlighted on X how California’s $200 billion pension shortfall worsens without high earners, projecting bankruptcy by 2030.

Newsom’s dilemma sharpens as federal Medicaid cuts loom under new administrations. Yet, taxing unrealized gains invites legal battles; similar federal proposals faced constitutional scrutiny over property rights. Tech lobbyists gear up, with Andreessen pledging opposition funds rivaling the measure’s $10 million war chest.

Billionaire Sentiments Amplify Online

On X, Palihapitiya lambasted the proposal as ‘absolutely retarded,’ predicting housing price drops around San Francisco from outflows. His thread dissected mechanics: a founder earning $150,000 salary but holding $1 billion equity owes $50 million yearly, forcing sales or flight. Elon Musk’s 2024 departure, spurred by similar attacks, serves as Exhibit A, costing untold tax dollars.

Broader sentiment turns grim. Founders from AI and crypto sectors, reliant on venture capital, see the tax as a startup killer. One VC told Fortune that reallocating offices to Austin or Miami is underway. States like Florida, with no income tax, salivate at the prospect, already hosting Tesla and Oracle HQs.

State Revenue Models Under Siege

California’s overreliance on capital gains—peaking at 25% of revenues—amplifies risks. In boom years, it thrives; busts trigger deficits. The tax aims to stabilize via wealth, but dynamic scoring suggests behavioral responses: high earners optimize domiciles, as seen post-2020 remote work surge when Palihapitiya foresaw California’s decline.

Innovation hubs falter without risk-takers. Silicon Valley birthed Apple, Google, and OpenAI on founder equity bets; taxing those bets mid-flight deters newcomers. Universities like Stanford warn of endowment hits, with faculty eyeing relocations. Newsom must balance leftist demands against economic engines powering 15% of U.S. GDP.

Global Ramifications for Tech Hubs

The ripple extends internationally. Dubai and Singapore court fleeing talent with zero wealth taxes, per IBTimes UK. Europe’s wealth taxes, like Spain’s, correlated with outflows; France lost 60,000 millionaires post-2012 hikes. California risks mirroring, with Palihapitiya noting on X how consumption taxes outperform income or wealth levies for growth.

Voter dynamics add uncertainty. Polls show 60% support taxing rich, but tech-dependent suburbs may balk at job losses. Signature gathering for the ballot nears 1 million; opponents mobilize. As 2026 looms, California’s tech supremacy hangs in balance, with billionaires’ moves dictating the verdict.