Billionaires Mark Cuban and Bill Ackman are not fans of a new tax proposal from Rep. Ro Khanna (D-Calif.). The plan would let startup founders who are rich on paper but short on cash pledge their shares to the government in exchange for a loan to cover their tax bills. The critics say it could leave founders drowning in debt or hand the government ownership stakes in struggling startups.

Cuban Warns of Government-Owned Startups

Here's how Khanna's plan works: founders get a long period to repay the loan in cash, and if they can't, the government takes ownership of the shares instead. Khanna laid it out in a post on X, saying the loan period would be long but not infinite (e.g., 10 years), and the loan would be non-recourse, meaning at the end of the period, the loan is either paid back in cash, or the government assumes the shares.

Cuban, in a post on X, called the plan "insane," questioning what the state gains from lending a founder money that gets handed straight back as a tax payment.

"You want the state to loan money to the founder, who will then immediately give it back to the state as a wealth tax? Meaning the state has not received any incremental receipts? What's the point of that?" the entrepreneur said.

He warned that the government could end up owning equity and holding board seats in companies that fail to repay their loans.

"Ideology is not a strategy," Cuban added.

Failed Founders Could Face Lifelong Wage Garnishment

Ackman took a different angle, focusing on what happens when a startup fails. He said the forgiven debt would be taxed as ordinary income, leaving founders with a tax bill right when they have no company, no equity, and no money to pay it.

"So the penalty for a failed startup is insolvency, and the government garnishes your wages for life," Ackman added.

Part of a Broader Wealth Tax Push

This isn't the first time Cuban has clashed with Khanna over tax policy. He previously warned that Khanna's proposed 5% wealth tax on California billionaires could drive founders out of the state, saying many become "cash poor, stock rich" after reaching billion-dollar valuations, making it hard to pay taxes without selling or borrowing against their shares.

That proposal is a November ballot measure for a one-time 5% tax on roughly 250 California billionaires, backed by Khanna, Sen. Bernie Sanders (I-Vt.), and the state's Democratic Party. Gov. Gavin Newsom opposed it in favor of a federal approach.

So, what's the takeaway? The debate highlights a fundamental tension: how to tax wealth that isn't liquid without crushing the entrepreneurs who create it. Cuban and Ackman argue that Khanna's solution could lead to government ownership of private companies or punish failure in ways that deter innovation. Khanna's camp would likely say it's about ensuring the wealthy pay their fair share. Either way, it's a conversation that's far from over.