Reddit Inc. (RDDT) co-founder Alexis Ohanian isn't holding back when it comes to California's proposed billionaire wealth tax. He's warning that the state's plan to slap a 5% levy on the ultra-wealthy could blow up in everyone's faces, especially when you consider what it might do to California's famous startup scene.

The Problem With Taxing Money You Haven't Actually Made

Over the weekend, Ohanian took to X with a pair of posts acknowledging something most people can agree on: the widening wealth gap is a real problem that needs fixing if we want to "preserve our republic." Fair enough. But here's where he draws the line: taxing unrealized gains isn't the solution.

What California's proposing is the 2026 Billionaire Tax Act, a ballot measure that would hit billionaires with a one-time 5% tax on their total net worth. The goal? Raise $100 billion to fund essential services. The proposal doesn't mess around either, including penalties between 20% and 40% of total tax owed for anyone who underreports, plus efforts to slam shut any loopholes people might try to exploit.

When someone asked Ohanian how a wealth tax differs from property taxes, which are also based on unrealized asset values, he said the comparison was "deeply troubling." His argument makes intuitive sense: taxing unrealized startup equity like real estate would be like "taxing lottery tickets based on what someone might win." Houses don't expire worthless, but the vast majority of startups absolutely do. Ohanian, who has an estimated net worth of $150 million according to Celebrity Net Worth, clearly sees a massive difference between taxing a stable asset and taxing paper wealth that could vanish overnight.

It's Not a Revenue Problem, It's a Spending Problem

Venture capitalist Chamath Palihapitiya, who Forbes pegs at a $1.2 billion net worth, jumped into the conversation with similar concerns. "California does not have a revenue problem. It has a spending problem," he posted on X, pushing back against the state's attempts to raise more money for essential services.

Palihapitiya went harder, accusing "politicians and their henchmen" of "stealing tens of billions of dollars per year from our pockets" and pointing to the state's failure to pass an audit. That's not exactly a subtle critique.

His warning about what happens if this tax actually passes is pretty stark: "California will soon start to lose its grip on being the most vibrant state in America." According to Palihapitiya, it won't just be billionaires packing their bags. "The millionaires and middle class will too," he predicted, painting a picture of a slow-motion economic exodus from a state that's been the center of tech innovation for decades.

The debate cuts to a deeper question about how you fund government services without accidentally destroying the economic engine that creates wealth in the first place. Whether you think California's billionaires are undertaxed or that the state government can't manage money properly probably depends a lot on your politics. But Ohanian and Palihapitiya are betting that taxing unrealized gains crosses a line that could have serious consequences for everyone involved.