California’s billionaire tax proposal draws backlash from crypto proponents

Many crypto industry proponents have criticized a proposed 5% tax on California billionaires, saying it would push wealth out of the state while doing little to fix the problems in the healthcare system it is designed to fund.

Introduced by the Service Employees International Union United Healthcare Workers West (SEIU UHW), one of California’s largest healthcare worker unions, the 2026 Billionaire Tax Act would impose a 5% annual tax on net wealth above $1 billion to support the state’s Medi Cal program and help cover a projected $30 billion funding shortfall.

The tax would apply to nearly every form of personal wealth, such as stock holdings, private business ownership, real estate, art, and luxury goods, including intangible assets like cryptocurrency. 

Further, the tax is assessed under a mark-to-market system that includes unrealized gains, which would be payable either in a one-time lump sum or spread out over five years with a 7.5% annual deferral charge on the remaining balance.

Critics argue that this provision would require some founders to sell shares or liquidate assets that may even reduce their voting power or dilute ownership, as most billionaires have their wealth tied up in illiquid assets rather than cash.

Then there are also concerns over double taxation, as selling large amounts of assets creates a taxable event under federal and state capital gains taxes, potentially forcing individuals to sell even more assets just to cover the taxes generated by the initial sale.

“To be clear, the Billionaire Tax Act in California is not (just) an unrealized gains tax. It’s a 5% across the board confiscation of net worth. It applies even if one has already realized and paid taxes on the entire amount,” White House AI and crypto Czar David Sacks explained.

In the meantime, several high-profile figures in the digital asset space have vocally argued against the measure and believe it would ultimately result in the flight of capital and entrepreneurs from California.

“A 5% theft of unrealized gains and assets taxes were already paid on is about the most retarded thing I’ve ever heard. I promise you this will be the final straw. Billionaires will take with them all of their spending, hobbies, philanthropy, and jobs,” Kraken co-founder Jesse Powell wrote in a recent X post.

Others like Castle Island Ventures founding partner Nic Carter raised concerns about the implications of the measure, saying “one time wealth taxes are a signal to capital — like a sovereign default — that more can be expected in the future,” as he questioned US Representative Ro Khanna, a crypto-friendly Democrat who is one of the key supporters of the proposals.

“I generally like Ro and have interacted with some of his staff who have always been fantastic, but I do wonder — have they done an analysis of capital mobility in response to wealth taxes?” Carter said.

Khanna, on the other hand, believes the proposal could help address inequality and lead to more sustainable funding for essential services like education, housing, and healthcare.

“We cannot have a nation with extreme concentration of wealth in a few places but where 70% of Americans believe the American dream is dead and healthcare, childcare, housing, education is unaffordable,” Khanna argued in a Dec. 27 X post.

Lessons from Norway

Meanwhile, Dune co-founder and CEO Fredrik Haga pointed to a similar wealth tax policy in Norway, which eventually backfired as the wealthy left the Nordic country in large numbers. Haga was among those who exited.

“Taxes on unrealized capital gains have led to more than half of the wealth held by Norway’s top 400 taxpayers moving abroad,” Haga said, adding, “Norway has become more equal and made everybody poorer and worse off, just as expected from strong socialist ideas.”

As a ballot initiative, the 2026 Billionaire Tax Act would require over 874,000 valid signatures to qualify for a statewide vote and subsequently face potential constitutional challenges in court before it can take effect.