California's 13.3% Income Tax Plus 5% Wealth Levy: Can Silicon Valley Survive the Tax Explosion?

California’s move to impose a one-time 5% tax on billionaires’ net assets has ignited one of the fiercest wealth-policy battles in modern American history. Set for voter approval in November 2026, the proposed levy threatens to transform the state’s already-aggressive tax climate—where the san francisco tax rate already ranks among the nation’s steepest. Against this backdrop, wealthy residents and their advisors are calculating whether staying in California still makes financial sense.

The state plans to collect roughly $100 billion from more than 200 billionaires through this initiative, expected to be implemented between 2027 and 2031. But what makes this proposal particularly contentious isn’t just the tax itself; it’s the environment it would create. California already boasts a 13.3% top individual income tax rate—combining a base rate with a surtax on income exceeding $1 million. Add the san francisco tax rate on top of that, and wealthy residents face a combined state-local burden that has few equals nationwide. The proposed billionaire tax would represent another layer atop this already-punitive landscape.

The $100 Billion Question: How California’s Billionaire Tax Would Work

The 2026 Billionaire Tax Act targets not just cash but a broad universe of assets: equity stakes in public and private companies, personal possessions valued over $5 million, and retirement accounts exceeding $10 million. Real estate held through revocable trusts gets exempted—a calculated move designed to avoid triggering California’s notorious Proposition 13 restrictions—but most other holdings remain exposed.

The architects of the proposal, spearheaded by the Service Employees International Union’s healthcare division, built in flexibility: wealthy taxpayers can pay in installments over five years (though interest applies), or defer payments through “selective tax deferral accounts” for illiquid holdings like private company stakes. These provisions acknowledge the challenge ultra-rich face when most of their net worth sits locked in company equity rather than liquid investments.

Four academics—three law professors and UC Berkeley economist Emmanuel Seth—estimate the haul at approximately $100 billion from roughly 200 billionaires, based on Forbes’ valuations of their net worth. Critics argue this projection is wildly optimistic, particularly once wealthy individuals begin restructuring their affairs or departing the state entirely.

Relocation Strategies: Why Some Billionaires Are Racing the Clock

What happens when the tax becomes real? Several of California’s most prominent billionaires have already begun their exit strategies. Google co-founder Larry Page, for instance, purchased two Miami properties totaling $173.5 million in late 2024, with associated business operations following suit shortly thereafter. His timeline suggests strategic positioning ahead of critical deadlines.

The tax’s design attempts to thwart such moves through temporal triggers: residency status locks in on January 1st of this year, while asset values are measured December 31, 2026. However, completely severing California tax residency remains legally complex. The state’s taxing authorities take an aggressive stance toward wealthy departures, historically winning cases against high-profile residents claiming non-resident status.

Consider Russell Peters, the Canadian comedian. Despite owning homes in Nevada (a state with no income tax), maintaining three Nevada-registered companies, and declaring himself a non-resident with a Canadian address, California’s tax authorities successfully challenged his status. The court found he spent more time in California than anywhere else and maintained substantial property holdings there. This precedent, reinforced by the Bracamonte case involving a couple trying to escape $17 million in taxes from a business sale, means judges now comprehensively examine residency claims.

“For someone like a Silicon Valley billionaire who’s spent decades amassing wealth there and maintains deep social and professional networks in the region, proving genuine permanent relocation is genuinely difficult,” explains Shail P. Shah, a San Francisco tax attorney specializing in residency disputes.

Jon D. Feldhammer, heading Baker Botts’ San Francisco tax practice, reports that multiple billionaires are consulting with him about serious relocation plans—and they’re considering moving their entire businesses, not just themselves. Yet Feldhammer also points to eight potential constitutional challenges Baker Botts identified, including arguments about retroactivity: if voters approve the tax in November, it applies retroactively to anyone who was a California resident on January 1, 2026. “The current Supreme Court’s position on retroactive taxation is nuanced,” Feldhammer notes. “My advice: relocate before the vote, and the earlier the better.”

The Legal Minefield: Constitutional Challenges Mount

The proposal faces sustained constitutional assault from multiple angles. Critics argue wealth taxes violate federal constitutional protections, though legal scholars defending the measure point out that while federal wealth taxation faces restrictions, individual states have long possessed the power to tax resident wealth and property holdings.

To preempt state constitutional litigation, the proposal’s drafters have included language proposing an amendment to California’s state constitution. The four academic authors emphasize that U.S. constitutional restrictions on wealth taxes apply only federally—states retain broad taxing authority over residents.

Yet Feldhammer’s analysis suggests the current Supreme Court’s stance on retroactivity remains unclear enough that billionaires with tax attorneys might successfully challenge assessments for years already past. This theoretical possibility has spurred urgent relocation efforts.

Asset Valuation Games: How the Tax Defines and Captures Wealth

Implementation reveals the proposal’s complexity. For privately-held companies, the default valuation formula uses “book value plus annual book profit multiplied by 7.5”—but the resulting figure cannot fall below valuations from previous fundraising rounds. Taxpayers unhappy with the assessment can submit appraisals requesting reconsideration.

Personal assets like artwork and jewelry cannot be valued below their insurance amounts. Charitable donations reduce taxable assets, but only if donation agreements are executed before October 15, 2025—a deadline now passed. Directly-held real estate purchased in 2026 cannot claim tax-avoidance exemptions if regulators deem the purchase deliberately structured to avoid taxation.

These valuation mechanics create obvious tensions: a startup founder whose company is valued at $2 billion at year-end 2026 must pay the wealth tax on that figure. If the company’s valuation subsequently crashes—a common occurrence in venture-backed companies—the founder still owes taxes on vanished wealth. More perversely, even if valuations hold steady, the founder must eventually sell shares to pay wealth taxes, triggering federal and California capital gains taxes combined at 37.1%. To cover those income taxes, they must sell even more shares, progressively diluting ownership stakes.

Economic Spillover: What Loss of Tech Talent Means for California

California Governor Gavin Newsom and business groups warn that the tax could trigger precisely what opponents fear most: mass exodus of tech entrepreneurs and their enterprises. Critics project substantial long-term erosion of the state’s income tax base, particularly given that the state already derives roughly half its individual income tax revenue from merely the wealthiest 2% of residents.

The California Legislative Analyst’s Office, a nonpartisan body, estimates the billionaire tax could cost the state hundreds of millions annually in lost income tax revenue—potentially more if major businesses relocate along with departing billionaires. That calculation excludes spillover effects: lost payroll taxes from employees, declining corporate income tax from businesses operating elsewhere, and diminished venture capital activity.

Yet proposal drafters counter that this represents “alarmism without factual basis.” David Gamage, a University of Missouri tax law professor and proposal author, argues that wealth-tax-driven relocations simply don’t materialize as predicted. He cites historical precedent suggesting wealthy populations remain relatively stable.

The real concern, however, centers on San Francisco’s artificial intelligence boom—the primary driver of Bay Area recovery from pandemic recession. If AI-generated wealth suddenly becomes subject to both high individual income tax rates (already at 13.3% statewide plus the san francisco tax rate locally) and a new 5% wealth tax, ambitious entrepreneurs might reasonably choose to build companies elsewhere.

“Everything in excess reaches its limits,” San Francisco tax attorney Shah observes. “Currently, AI momentum is powering our recovery. Everyone worries that additional tax burdens could derail that progress.”

Global Momentum: Why Other States Are Following California’s Lead

California isn’t pioneering “tax the rich” sentiment in isolation. New York City combines the nation’s highest state-plus-city income tax burden: the state’s top rate of 10.9% layers atop the city’s 3.9%, producing combined 14.8% taxation on high earners. Newly-elected Mayor Zohran Mamdani campaigned explicitly on raising the city-level rate to 5.9%, generating a combined 16.8% effective rate. Despite massive billionaire-funded opposition, voters elected him in November 2025.

This outcome has intensified concerns among California opponents of the billionaire tax. If New York succeeds in pushing its combined rates to 16.8%—exceeding California’s current 13.3% rate by over 3 percentage points—geographic competition for wealth-generating entrepreneurs might finally break California’s way. Alternatively, both coasts could enter a race-to-the-bottom tax competition that ultimately reshapes American settlement patterns.

What Comes Next: Implementation Hurdles Ahead

Before reaching voters in November, the proposal must clear substantial bureaucratic hurdles. The California Attorney General must certify it, and organizers must collect 875,000 valid voter signatures by the end of June 2026. Should voters approve it, expect immediate litigation from affected billionaires, armed with constitutional arguments that Baker Botts and other tax specialists have meticulously prepared.

Even if the tax becomes law, valuation disputes will consume resources for years. The proposal’s detailed asset-pricing mechanics, while comprehensive, provide substantial grounds for contestation. Ultra-wealthy taxpayers have unlimited resources to litigate each valuation decision.

The proposal’s founders have attempted to preempt this through clause design that dismisses certain legal challenges upfront, but successful litigation remains likely. The real question isn’t whether the wealth tax passes—voter sentiment in California historically favors taxing the rich—but whether it survives judicial scrutiny and actually generates the projected $100 billion.

For now, wealthy Californians with tax advisors are making calculated decisions about their residency status, business locations, and asset structures. The san francisco tax rate, already among America’s steepest, may soon become a historical reference point—the moment when California’s pursuit of wealth taxation created conditions for the largest migration of tech capital in a generation.