California’s proposed 5% billionaire tax sounds punitive enough.

But buried deep in the fine print is a clause that has Silicon Valley executives panicking, the New York Post reports.

California wants to tax power, or controlling interest in a company, as if it were cash.

Under the proposal, founders wouldn’t be taxed only on what they actually own. They’d be taxed on how much stock ownership they have — even if that control can’t be sold, spent, or used to pay the tax bill.

Critics call this a tax on “phantom wealth.”

Many tech companies use something called dual-class stock. It’s how founders keep decision-making authority while selling most of their company to investors. One share might be worth one dollar of ownership but carry 10 votes.

That structure lets founders protect long-term vision without owning most of the company outright. It’s a standard in Silicon Valley.

California’s proposal blows that distinction up.

If a founder owns 3% of a company but controls 30% of the votes, the state would tax them as if they own 30% of the company itself — even though they don’t.

No sale. No payday. No cash in the bank. Just a massive tax bill impossible to pay.

Picture this: you start a company, investors pile in, and on paper the business is suddenly worth billions.

However, your shares are locked up. You can’t sell them, and, instead, you’re living off a salary.

California still shows up asking for millions — or hundreds of millions — in taxes based on a valuation that exists only on spreadsheets.

It’s the financial equivalent of taxing a homeowner on a sky-high estimate before the house is sold — and demanding payment in cash.

Silicon Valley entrepreneurs say the rule punishes the very act of building and controlling a company.

Keep control so you can fend off hostile takeovers or entrenched interests? You’re taxed.
Give up control early? You’re safer — but your company may not survive.

The message many executives hear is blunt: You can innovate in California — just don’t stay in charge while you do it.

The exit signs are flashing.