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In the summer of 2021, I won San Francisco’s version of the lottery when the company I worked for went public. Overnight, my net worth topped six figures, and I considered myself incredibly lucky.
Six months later, the tax bill came due.
This was not income tax from selling my company shares; rather, it was the Alternative Minimum Tax (AMT), a tax paid on unrealized gains on those shares both federally and in California. AMT is applied not when selling shares, but when buying them: I was taxed despite not earning any actual money. I owed more in taxes than I had in income that first year.
To be clear: I’m not complaining.
As California considers Proposition 40, a ballot measure to tax 5% of the wealth of billionaires, I find myself perplexed by the idea that a tax on illiquid wealth is untenable for some of the state’s — and the world’s — richest people. After all, I, and countless other lucky tech employees in California, have been paying similar taxes for years thanks to AMT. There are serious arguments against AMT, but few high profile Californians have threatened to change their residences or move their businesses because of it.
California is one of only four states to charge AMT, a tax that uniquely hits the tech startup industry that makes up a massive part of the state’s wealth. Employees and founders in California must pay this tax even if their company isn’t publicly traded or shares can’t be sold, as long as the value of their shares has grown enough upon exercise. AMT is not the same as a wealth tax, but the idea that taxing unrealized, illiquid wealth might jeopardize investment in our state is proven false by the very existence of this tax.
But looking beyond AMT, billionaires are undeniably able to pay a one time wealth tax due to the very nature of their wealth, whether directly or through the “buy, borrow, die” loophole that lets them amass their fortunes without ever paying their fair share of taxes. Savvy high net worth individuals can simply take out loans to pay it off; because banks often offer lower interest rates to those with more wealth, billionaires get cheaper loans. (Alas, my mere six figure windfall didn’t give me that option.)
‘The debate around Prop 40 is a noisy distraction from its potential impact: literally saving lives.’
What’s more, conservative investing ensures billionaires effectively lose nothing: guaranteed bond yields alone are enough to cover the tax. With a more traditional market-based investment portfolio, they’d likely earn far more than 5% annually. To me, nobody epitomizes this more than MacKenzie Scott, who has gifted $26 billion of her wealth since divorcing Jeff Bezos and yet has effectively the same amount of money as when she began her philanthropy.
Critics of Prop 40 raise the specter of billionaires fleeing California to avoid the tax. The state legislative analyst estimates this would reduce tax revenue by less than $1 billion per year; it would take decades to eat through the upfront revenue. At a time when many long to live here and can’t afford to do so, these individuals who made their fortunes here and who say they want to be here are loudly uprooting their lives to avoid paying a tax so small compared to their worth as to have no meaningful impact on their lives.
The debate around Prop 40 is a noisy distraction from its potential impact: literally saving lives. Without it, more than 2 million Californians are expected to lose health insurance; healthcare providers will see lower payments; and rural hospitals serving areas already burdened by severe provider shortages will be at higher risk of closure, at a time when clinician burnout is already on the rise. The next Governor could find funds elsewhere in the budget, but that might mean up to $30 billion in cuts to schools, housing, and more.
I’ve yet to see opponents to Prop 40 propose an alternative solution to any of this.
In fairness to Prop 40’s critics, I think there are better ways to tax the wealthy than the one proposed in the proposition. A wealth tax would be better issued at a federal level, closer to the estate tax. Earmarking Prop 40 primarily for healthcare rather than the general fund limits the potential good it can do for the state and its citizens. We should close other loopholes, such as “step up in basis” and “buy, borrow, die.” Perhaps a larger tax on real wealth could replace AMT for illiquid wealth, to protect employees who can’t pay it.
But these are not the options in front of us. The alternative is to not generate that revenue at all. In facing severe federal budget cuts, that alternative is untenable at best and immoral at worst. And if California voters don’t support a wealth tax, it’s hard to imagine convincing Congress to support one on the federal level.
Some billionaires are fighting this proposition. Sergey Brin alone has donated more than $100 million to defeat it. Brin, notably, takes a $1 salary and hasn’t sold any of his $125 billion in Google stock since 2022. He has likely spent more to defeat this measure than he’s paid in taxes in years.
But not all billionaires have fought its passing. Nvidia CEO Jensen Huang has said: “I have not even thought about [the billionaire tax] once. [...] We chose to live in Silicon Valley, and whatever taxes they would like to apply, so be it. I’m perfectly fine with it.”
Huang is the seventh richest person in the world, and would stand to pay approximately $10 billion if this tax passes. The taxes I paid were a fraction of a fraction of that, yet, for me, a significant chunk of my wealth. It hurt, but like Huang, I was perfectly fine with paying it. And if someday I ever approach Huang’s wealth, I hope my state will ask me to pay my fair share then, as well.
Brian Braunlich is a board member of the SF Solidarity Club.
