Billionaire entrepreneur Mark Cuban has a message for Rep. Ro Khanna (D-Calif.): a 5% wealth tax on California billionaires might sound good in theory, but it could backfire in practice. Cuban warned that the proposal could discourage investment and push high-value startups and their founders out of the state.

Khanna Backs Wealth Tax

On Saturday, Khanna announced that the California Democratic Party and the state's labor movement had joined him and Sen. Bernie Sanders (I-Vt.) in supporting the proposal.

"The California Democratic Party and the California labor movement just stood with @BernieSanders and me in supporting 5% wealth tax on 250 California billionaires," he said.

He added, "California voters want a Democratic Party that will stand up for the working class over the billionaire class."

Cuban Warns Wealth Tax Could Drive Startups Out

Cuban pushed back against Khanna's proposal, arguing it could hurt billion-dollar startups and drive investors and founders out of the state. He pointed out that many startup founders become "cash poor, stock rich" after their companies reach billion-dollar valuations, making it difficult to pay a wealth tax without selling or borrowing against their shares.

"If this passes, and it doesn't directly impact me at all, I won't be a Cali resident, but you can bet if I'm investing in a multi billion dollar startup, I'm asking them to move from California first," Cuban wrote.

He warned that he would make leaving California a condition for investing in startups, adding, "I will make NOT being in California a pre requisite for an investment."

Cuban concluded his response to Khanna, saying, "Ideology is not a strategy."

In a follow-up post on X, Cuban elaborated on the unique financial situation of "deca-unicorns" (startups valued at $10 billion or more), noting that even if they raise a billion dollars, little of that money is actually liquid for founders.

California Wealth Tax Sparks Billionaire Exodus Fears

Earlier, California Democrats endorsed Proposition 40, a November ballot measure proposing a one-time 5% tax on billionaires, with supporters saying the revenue could fund health care, food assistance and state budget needs.

Gov. Gavin Newsom (D-Calif.) opposed the measure but backed a federal wealth-tax approach.

Sanders separately renewed his call for a 5% annual federal tax on fewer than 1,000 billionaires, which he said could raise more than $4.4 trillion for programs benefiting working families.

Peter Schiff warned of a "mass exodus" of wealthy entrepreneurs, arguing that taxing unrealized wealth could force billionaires to sell assets and encourage them to leave the state.

Kevin O'Leary called the measure "un-American, unconstitutional" and questioned how California could value and tax noncash assets. He also warned that the proposal could trigger lengthy litigation and accelerate the loss of businesses and wealthy residents.