When California floated a billionaire tax proposal, venture capitalist Chamath Palihapitiya says the ultra-wealthy didn't wait around to see if it would pass. They just left.

Half a Trillion Dollars Walks Out the Door

On Thursday, Palihapitiya posted on X that people he knows representing roughly $500 billion in combined net worth made permanent exits from California after learning about the proposed levy, which he characterized as resembling asset seizure.

"People I know, with a collective net worth of $500B, scrambled and left California for good yesterday," he wrote.

The concern, according to Palihapitiya, is straightforward: these individuals decided leaving immediately was safer than risking exposure to the tax. The ironic result? California might end up collecting less revenue, not more.

He warns that losing these high-net-worth taxpayers will expand the state's budget deficit rather than shrink it, forcing lawmakers to either borrow more money or raise taxes on everyone else. "Without these people, the California budget deficit will only get bigger," Palihapitiya wrote, suggesting ordinary taxpayers could ultimately bear the burden.

The Founder Problem: Billionaires on Paper, Not in Cash

Palihapitiya has been vocal about what he sees as a fundamental flaw in the proposal: it targets unrealized and illiquid wealth, hitting startup founders particularly hard.

Here's the issue. Many entrepreneurs take modest salaries while holding enormous equity stakes in their companies that can't easily be converted to cash. Palihapitiya offered a specific example: a founder with approximately $1.2 billion in paper equity earning just $150,000 annually could face a tax bill requiring tens of millions of dollars in actual cash.

If that company's value later collapses, the tax obligation remains unchanged. The founder could wind up insolvent, owing money on wealth that no longer exists.

The Political Pushback Grows

Rep. Ro Khanna, a California Democrat, pushed back on the criticism, questioning whether a limited-duration wealth tax would really destroy Silicon Valley. He argued that those with extreme wealth should contribute more, especially given rising public frustration over inequality.

But Palihapitiya isn't alone in his concerns. Hedge fund billionaire Bill Ackman has warned that California risks driving out entrepreneurs and business leaders entirely. Reports suggest that Peter Thiel and Google co-founder Larry Page have explored reducing their California ties.

David Sacks, former PayPal Holdings Inc. chief operating officer and current White House advisor, has also indicated he may leave California amid the billionaire tax backlash.

The question now is whether California's attempt to capture more revenue from the ultra-wealthy will backfire by simply convincing them to move somewhere else.