Spooky News: California's Billionaire Tax is on the Ballot!

0:00I'm Kent Lindstrom, co-founder of 8BitCapital, a Silicon Valley venture capital firm that invests in the software startups of the future. We focus on AI, cybersecurity, and fintech. I'm going to take you behind the scenes in Silicon Valley. This is the Something Ventured Podcast.

0:24All right, welcome back. It's the Something Ventured Podcast. I am Kent Lindstrom. I am your host. It is just me today. But don't you worry, it's going to be interesting. I'm going to walk you through the billionaire's tax. That's right. It's on the ballot in California. Last time I updated you, we weren't sure if it would be on the ballot. Well, it is on the ballot. And first of all, you guys seem to like these explainers I've been doing, so I'll try to do a couple more. But the billionaire's tax here in California, for those of you who listen around the world and in California, is something that no less than people like David Sachs and Mark Andreessen and Ben Horowitz have said could basically destroy Silicon Valley, which is a bit hyperbolic, but they're actually pretty sincere in that kind of reading of what's going on.

1:14So let me explain what's going on. In California, we have propositions, which is that you can get a number of signatures and say, hey, I want to put a bill on the ballot, and then the people vote on it. And it's a little bit crazy. You'd think we would elect people and they would go to the state house and they would make laws. We do that, too, by the way. I think our governor, I will leave this without too much editorializing, but our governor signed something like 6 ,000 bills while he's been in office. It's kind of crazy. But anyway, the billionaire's tax. A union in California went out, it's the healthcare union, went out and got enough signatures to put this on the ballot.

2:01And what it is is a one-time, bear with me on this, it's a one-time tax on billionaires, on their assets, on their assets of 5%. And we thought for a while they would withdraw it. you can withdraw it. And what happens is with a union in California is they can say, the governor, who is not for this, by the way, to be clear, none of the other unions, I'll get to that in a minute, or the governor are for this billionaire's tax. And what a lot of people thought would happen is that the union against the healthcare union, the money goes to healthcare, pay for healthcare, that they would say, well, okay, we'll pull it off the ballot, but give us, you know, 3 % raise or whatever it is.

2:46And then that didn't happen. So it's on the ballot. And so it's opposed by the governor, Gavin Newsom, who, keep this in mind, maybe running for president, opposed by the other unions. Now, there's a couple of possible reasons for that. The generous one is that they think, well, this could destroy California. People would not come to California to build businesses because they're like, well, if I succeed, they're going to take my money. And the existing billionaires will leave. In fact, Mark Zuckerberg, the two founders of Google and David Sachs have all left. They're all no residents of Texas or Florida.

3:23So it could be that they just think it's bad, bad for bad for the state. Also, however, they're not in on it. So there's, you know, this is the teachers. This is the health care union getting money for health care. Teachers union is not in on it. The carpenters union, so forth and so on. So unions in California, by the way, spend hundreds of millions of dollars on getting people elected. So there it is. It's on the ballot. And those are the folks who oppose it. So why is it a problem? I told you the big obvious thing, which is that the billionaires leave. And you may hate billionaires, but they do pay a lot of taxes.

4:04In fact, yes, they don't pay income tax because they don't get a salary, but they sell assets. It's their SpaceX stock goes public. They pay tax on that. They pay an enormous amount of taxes. Now, whether or not it's their fair share, I'll leave that discussion aside for the moment. So the obvious effect is California loses billionaires and doesn't attract new people who could become billionaires. By the way, everywhere else in the world where they've had a wealth tax, it has failed and been repealed. But in the European countries that have tried it, all their founders and entrepreneurs just basically left.

4:39There are two maybe bigger and subsidiary issues that I should point out. However, one of them is this. Who's a billionaire? You're pretty sure Mark Zuckerberg is, right? You're pretty sure Larry and Sergey, they're billionaires, right? But there could be other billionaires. It could be an almond farmer. It could be, I don't know, anybody. How would you know? How does the IRS know? The IRS doesn't go look, or I'm sorry, the California tax board. How does it know? It doesn't just go look at Forbes and see who's a billionaire. The way they would do it is every single person in California would have to list all of their assets.

5:13However you feel about that, right? Value of your house, value of your car, minus the value of your mortgage, put your 401k in there, which however that makes you feel, reporting your assets to the government. And of course, would lead to the obvious thing, which is that most of the money, billionaires each have a lot of money, but collectively they don't. Collectively, the most money is in the middle class. It's in all those 401ks and all that home equity value. And it wouldn't take long for them maybe to say, hey, that's the money we need to tax. But they can't do that, right? This is a billionaire's tax.

5:47Well, no. If you read the actual text of the tax, it starts out as a 5 % billionaire's tax. but then um it says if the legislature and california has a very left-leaning super majority legislature that votes for a new tax or fee pretty much every other day um if they decide it's in the spirit of the um of the bill well they can make a tax not one time but recurring and lower it from billionaires to whoever they want millionaires uh people with second homes Already, Ro Khanna, who represents Silicon Valley in Congress, incredibly, has said, yeah, we need this billionaire's tax to apply to everybody with$50 million in assets.

6:35Well, before we even are even out of the blocks, that's a 95 % drop in the assets. And$50 million is a tremendous amount of money. But you imagine the farmer with$5 million in the bank and$45 million in land. How is that person going to pay? They're going to be bankrupt. By the way, something else, this might be a nerdy little aside. The reason Larry and Sergey of Google decamped is that this law taxes you on voting stock you control, not economic stock. So the two Google founders, I think, each own like 3 % of Google. And let's say Google is worth a trillion dollars. So they each own 3%. However, they control each share that they have votes 10.

7:25So they have 3%, but they each vote 30%. So together, 60 % they control the company. They would be taxed on the 30%. So let's think about that for a second. They own 3 % of Google. That's$30 billion. They own 5 % of that. Okay, 1.5 billion. However, what they really get taxed on is 30 billion. You know, 5%. And so kind of a crazy concept, but that's an aside. Okay. So nevertheless, there's the issue. You need to report what you own to the government and then the government can decide that this is not just a billionaire's tax. It's a tax for everybody worth a million dollars. Again, a tremendous amount of money, but if you have a home in California, there you go.

8:15So, you know, that's kind of interesting. The government getting more data about you, by the way, California is also considering, in case you didn't get it, it's one tax after another around here. But California is considering a mileage tax on cars. Why? We have a gas tax, huge gas tax. Well, electric cars don't pay it. And so they want to charge it by the mile. At the end of the year, how many miles you drive? you know, we're going to charge you 30 cents a mile. Here's your bill. Well, that seems fine, right? I'll just say I didn't drive any miles this year. Great. Sorry. Yeah, it's zero. Nothing, nothing to see here.

8:57Well, no, the solution is, of course, they would put a tracker in everybody's car. And then so how do you feel about having the government with a tracker in your car? Okay, so that's the idea. So let's just say Gavin Newsom, the governor for a second, And a few people have said this. When he says California shouldn't have a billionaire's tax, he says we should have a national tax. And so what he's focusing on is he's saying, well, it's not that it's not fair to tax somebody who's paid their taxes and it's their money, it's in the bank. He's saying, well, if California does it and Texas doesn't, then everyone's going to move to Texas, which in fact people have.

9:36He's saying we should have a national billionaire's tax so then you can't escape it. Okay. Now, here's the problem with that. There's a thing in the Constitution, not the most oft-read part of the Constitution, but that says that if you have a direct tax like that, the states must pay it proportionally. So if you're 10 % of the population, you pay 10 % of that tax. So you think, well, that's pretty good, right? I mean, California's got more population and New York has more population and they'd pay more tax and they have more billionaires. That'll make sense, right? Here's the thing. Places like California, New York do have more population, but they have even more and more wealth than they have population.

10:21And so they would be paying relatively on a headcount basis less than if it was on a wealth basis, but it's not a headcount basis in the constitution. So for example, one way to say like New Hampshire, They said, hey, New Hampshire, you own 2 % of this national wealth tax. And New Hampshire said, well, we only have 0.5 % of all the wealth in the country. So they'd have to tax their people at the rate of 4X, kind of 4X of everybody else. So will it pass? And so let's say this is as devastating as people say, and it opens up the Pandora's box to all the rest of us being taxed. I don't know if I mentioned, not a billionaire.

11:01um will it pass well it's called a billionaire's tax and in california this proposition thing we have i don't know 20 or 30 every election they are um i'll try to be impartial here they they are named very um it can be pretty deceptive uh we had a bill a few years back that was basically decriminalized all kinds of things like shoplifting under a certain amount and different physical crimes. And a lot of people say that once we passed that bill, the bill that decriminalized all these things, it led to a rise in crime, car break-ins. If you walk into a Walgreens in California, everything's locked up.

11:44That bill that decriminalized everything was called, not kidding, the Safe Neighborhoods and Schools Act. So this is called a billionaire's tax. It seems like something that might pass. Well, here's a wrinkle to that. There's two other initiatives, two other ballot initiatives that have been put forward, I think are supported by the Google guys, but don't quote me on that. Don't take me to podcast court on that. So in California, if two propositions have the opposite effect, the one that has more votes, higher percentage votes, nullifies the other one. So if you had one bill that said ban data centers and it got 51%, that passes, right?

12:28But the other one says, no, you can't, it's illegal to ban data centers. And I had 70%, the 70 % one would cancel out the other one, even though it won the majority. So there's two other bills that are designed to neutralize that proposition. The billionaire's tax is Prop 40. Prop 41, it's an audit on new spending. And this is, I have to admit, this is the one I understand the less, but meaning that if you say we need to spend more money, you do an analysis of whether that money needs to be spent and the state should spend the money. What's not clear is in California, I'm not sure in what world they would ever decide they didn't need to spend more money.

13:04But that's Prop 41. And then Prop 42 is just basically, oh, by the way, this is a retroactive tax, the billionaire's tax, I forgot. It's retroactive to the beginning of the year. So if you're here at the beginning of the year, you'd pay it. the idea being that once the tax passed, everybody would just leave. Well, everybody did leave in advance of it. So Prop 42 says basically you can't tax personal property and you can't have retroactive taxes. So that's the one that I think if you're an opponent of Prop 40, you think Prop 40 is going to pass, so you hope that that's the one that happens. So that's it.

13:41So that's the destruction in Silicon Valley. And I'll leave you with a thought. I was talking to somebody and they were kind of complaining about billionaires. And I kind of said, you know, how is your life worse? Because Taylor Swift is a billionaire or Oprah Winfrey's a billionaire. And they're like, well, I don't, I didn't mean them. I mean like, you know, Elon Musk. It's like, well, fair enough. But that means you just don't like Elon Musk. It's not billionaires because Taylor Swift being a billionaire doesn't make your life worse. In fact, when you think about people like Taylor Swift and Oprah, great that they're billionaires, they've accomplished a lot.

14:18But they kind of just made themselves wealthy. Nobody really got wealthy on the Taylor Swift tour other than Taylor. People had jobs. But when something like Apple or Amazon becomes worth a trillion dollars, thousands of employees, and this is my little editorializing for Silicon Valley, hey, I work here, why wouldn't I? Thousands and thousands of employees are made economically whole, economically free by their efforts of having been there. They've created economic stability for their family for years. Thousands and thousands of teachers whose pensions made money on Amazon or Apple or whatever it is, have wealth generated for them.

15:01Your 401k, if you have 401k, wealth was generated there. And so aside from that aspect, and again, Again, billionaires are good. It's not going to be my pitch to you. But in California, the rich, and this is the fact that is kind of stunning. And when you see people, I think different presidents and presidential candidates have said, we basically shouldn't tax the bottom 25 % of the country. It's because there's no money there is why they say it. In California, the richest 1 % pay 40 % of the taxes. The richest 10 % pay 70 % of the taxes. So basically rich people are paying all the taxes. Might not be enough, might not be fair, but there it is.

15:43And so this November, California will vote on the Prop 40 billionaires tax in California. We will see what happens. Stay tuned. That's it. That's your update on the California billionaires tax. It's on the ballot. Thank you so much for listening. Talk to you next time.

16:29here in California, for those of you who listen around the world and in California, is something that no less than people like David Sachs and Marc Andreessen and Ben Horowitz have said could basically destroy Silicon Valley, which is a bit hyperbolic, but they're actually pretty sincere in that kind of reading of what's going on. So let me explain what's going on. In California, we have propositions, which is that you can get a number of signatures and say, hey, I want to put a bill on the ballot, and then the people vote on it. And it's a little bit crazy. You'd think we would elect people, and they would go to the statehouse, and they would make laws.

17:15We do that, too, by the way. I think our governor, I will leave this without too much editorializing, but our governor signed something like 6 ,000 bills while he's been in office. It's kind of crazy. But anyway, the billionaire's tax. A union in California went out. It's the health care union. Went out and got enough signatures to put this on the ballot. And what it is is a one-time. Bear with me on this. It's a one-time tax on billionaires, on their assets of 5%. And we thought for a while they would withdraw it. You could withdraw it. And what happens is with a union in California is they can say the governor, who is not for this, by the way, to be clear, none of the other unions, I'll get to that in a minute, or the governor are for this billionaire's tax.

18:13And what a lot of people thought would happen is the union against the healthcare union, the money goes to healthcare, pay for healthcare, that they would say, well, okay, we'll pull it off the ballot, but give us 3 % raise or whatever it is. And then that didn't happen. So it's on the ballot. And so it's opposed by the governor, Gavin Newsom, who, keep this in mind, maybe running for president, opposed by the other unions. Now, there's a couple of possible reasons for that. The generous one is that they think, well, this could destroy California. People would not come to California to build businesses because they're like, well, if I succeed, they're going to take my money.

18:51And the existing billionaires will leave. In fact, Mark Zuckerberg, the two founders of Google, and David Sachs have all left. They're all no residents of Texas or Florida. So it could be that they just think it's bad for the state. Also, however, they're not in on it. So this is the healthcare union getting money for healthcare. Teachers union is not in on it, the carpenters union, so forth and so on. Unions in California, by the way, spend hundreds of millions of dollars on getting people elected. So there it is. It's on the ballot. And those are the folks who oppose it. So why is it a problem?

19:35I told you the big obvious thing, which is that the billionaires leave. And you may hate billionaires, but they do pay a lot of taxes. In fact, yes, they don't pay income tax because they don't get a salary, but they sell assets. Their SpaceX stock goes public. They pay tax on that. They pay an enormous amount of taxes. Now, whether or not it's their fair share, I'll leave that discussion aside for the moment. But so the obvious effect is California loses billionaires and doesn't attract new people who could become billionaires. By the way, everywhere else in the world where they've had a wealth tax, it has failed and been repealed.

20:12But, you know, the European countries that have tried it, all their founders and entrepreneurs just basically left. There are two maybe bigger and subsidiary issues that I should point out. However, one of them is this. Who's a billionaire? You're pretty sure Mark Zuckerberg is, right? You're pretty sure Larry and Sergey, they're billionaires, right? But there could be other billionaires. It could be an almond farmer, could be, I don't know, anybody. How would you know? How does the IRS know? The IRS doesn't go look, or I'm sorry, the California tax board, how does it know? It doesn't just go look at Forbes and see who's a billionaire.

20:48The way they would do it is every single person in California would have to list all of their assets. However you feel about that, right? Value of your house, value of your car minus the value of your mortgage, put your 401k in there, which, however that makes you feel, reporting your assets to the government. And of course, would lead to the obvious thing, which is that most of the money, billionaires each have a lot of money, but collectively they don't. Collectively, the most money is in the middle class. It's in all those 401ks and all that home equity value. And it wouldn't take long for them maybe to say, hey, that's the money we need to tax, but they can't do that right this is a billionaire's tax well no if you read the actual text of the tax it starts out as a 5 % billionaire's tax but then it says if the legislature in California has a very left-leaning supermajority legislature that votes for a new tax or fee pretty much every other day if they decided it's in the spirit of the bill, well, they can make a tax not one time, but recurring, and lower it from billionaires to whoever they want, millionaires, people with second homes.

22:03Already, Ro Khanna, who represents Silicon Valley in Congress, incredibly, has said, yeah, we need this billionaire's tax to apply to everybody with$50 million in assets. Well, Well, before we even ride even out of the blocks, that's a 95 % drop in the assets. And$50 million is a tremendous amount of money. But you imagine the farmer with$5 million in the bank and$45 million in land. How's that person going to pay? They're going to be bankrupt. By the way, something else, this might be a nerdy little aside. The reason Larry and Sergey of Google decamped is that this law taxes you on voting stock you control, not economic stock.

22:50So the two Google founders, I think, each own like 3 % of Google. And let's say Google's worth a trillion dollars. So they each own 3%. However, they control each share that they have votes 10. So they have 3%, but they each vote 30%. So together, 60 % that control the company. They would be taxed on the 30%. So let's think about that for a second. They own 3 % of Google. That's$30 billion. They own 5 % of that. Okay. You know, 1.5 billion. However, what they really get taxed on is 30 billion. You know, 5%. And so kind of a crazy concept. But that's an aside. Okay. So nevertheless, there's the issue.

23:31You need to report what you own to the government. And then the government can decide that this is not just a billionaire's tax. It's a tax for everybody worth a million dollars. Again, a tremendous amount of money. But if you have a home in California, there you go. So, you know, that's kind of interesting. The government getting more data about you, by the way, California is also considering, in case you didn't get it, it's one tax after another around here. But California is considering a mileage tax on cars. Why? We have a gas tax, huge gas tax. Well, electric cars don't pay it. And so they want to charge it by the mile.

24:23You know, at the end of the year, how many miles you drive? You know, we're going to charge you 30 cents a mile. Here's your bill.

24:30Well, that seems fine, right? I'll just say I didn't drive any miles this year. Great. Sorry. Yeah, it's zero. Nothing to see here. Well, no, the solution is, of course, they would put a tracker in everybody's car. And then so how do you feel about having the government with a tracker in your car? Okay, so that's the idea. So let's just say Gavin Newsom, the governor, for a second, and a few people have said this. When he says California shouldn't have a billionaire's tax, he says we should have a national tax. And so what he's focusing on is he's saying, well, it's not that it's not fair to tax somebody who's paid their taxes and, you know, it's their money, it's in the bank.

25:09He's saying, well, if California does it and Texas doesn't, then everyone's going to move to Texas, which, in fact, people have. he's saying we should have a national billionaire's tax so then you can't escape it okay um now here's the problem with that there's a thing in the constitution um not the most oft-read part of the constitution but that says that if you um have a direct tax like that the states must pay it proportionally so if you're 10 of the population you pay 10 of that tax so you think well that's pretty good, right? I mean, California has got more population and New York has more population and they'd pay more tax and they have more billionaires.

25:51That'll make sense, right? Here's the thing. Places like California, New York do have more population, but they have even more and more wealth than they have population. And so they would be paying relatively on a head count basis less than if it was on a wealth basis, but it's not a head count basis in the constitution. So for example, the one way to say like New Hampshire, they said, Hey, New Hampshire, you own 2 % of this national wealth tax. New Hampshire said, well, we only have 0.5 % of all the wealth in the country. So they'd have to tax their people at the rate of 4X, kind of 4X of everybody else.

26:28So will it pass? And so let's say this is as devastating as people say, and it opens up the Pandora's box to all the rest of us being taxed. I don't know if I mentioned, not a billionaire. Will it pass? Well, it's called a billionaire's tax. And in California, this proposition thing, we have 20 or 30 every election. They are trying to be impartial here. They are named very it can be pretty deceptive. we had a bill a few years back that was basically decriminalized all kinds of things like shoplifting under a certain amount and different physical crimes. And a lot of people say that once we passed that bill, the bill that decriminalized all these things, it led to a rise in crime, car break-ins.

27:19If you walk into a Walgreens in California, everything's locked up. That bill that decriminalized everything was called, not kidding, the Safe Neighborhoods and schools act. So this is called a billionaire's tax. It seems like something that might pass. Well, here's a wrinkle to that. There's two other initiatives, two other ballot initiatives that have been put forward, I think are supported by the Google guys, but don't quote me on that. Don't take me to podcast court on that. So in California, if two propositions have the opposite of fact, the one that has more votes, higher percentage votes, nullifies the other one.

28:02So if you had one bill that said ban data centers and it got 51%, that passes, right? But the other one says, no, you can't, it's illegal to ban data centers. And I had 70%, the 70 % one would cancel out the other one, even though it won the majority. So there's two other bills that are designed to neutralize that proposition. The billionaire's taxes, Prop 40. Prop 41, it's an audit on new spending. And I have to admit, this is the one I understand the less, but meaning that if you say we need to spend more money, you do an analysis of whether that money needs to be spent and the state should spend the money.

28:37What's not clear is in California, I'm not sure in what world they would ever decide they didn't need to spend more money. But that's Prop 41. And then Prop 42 is just basically... Oh, by the way, this is a retroactive tax, the billionaire's tax, I forgot. It's retroactive to the beginning of the year. So if you're here at the beginning of the year, you'd pay it. The idea being that once the tax passed, everybody would just leave. Well, everybody did leave in advance of it. So Prop 42 says basically you can't tax personal property and you can't have retroactive taxes. So that's the one that I think if you're an opponent of Prop 40, you think Prop 40 is going to pass, you hope that that's the one that happens.

29:20So that's it. So that's the destruction in Silicon Valley. And I'll leave you with a thought. I was talking to somebody and they were kind of complaining about billionaires. And I kind of said, how is your life worse? Because Taylor Swift is a billionaire or Oprah Winfrey's a billionaire. And they're like, well, I don't, I didn't mean them. I mean, like, you know, Elon Musk. It's like, well, um, fair enough. But that means you just don't like Elon Musk. It's not billionaires because Taylor Swift being a billionaire doesn't make your life worse. In fact, when you think about people like Taylor Swift and Oprah, great that they're billionaires.

29:56They've accomplished a lot. Um, but they kind of just made themselves wealthy. Like nobody really got wealthy on the Taylor Swift tour other than Taylor. People had jobs. But when something like Apple or Amazon becomes worth a trillion dollars, thousands of employees, and this is my little editorializing for Silicon Valley, hey, I work here, why wouldn't I? Thousands and thousands of employees are made economically whole, economically free by their efforts of having been there. They've created economic stability for their family for years. thousands and thousands of teachers whose pensions made money on Amazon or Apple or whatever it is, have wealth generated for them.

30:41Your 401k, if you have 401k, wealth was generated there. And so aside from that aspect, and again, billionaires are good, it's not going to be my pitch to you, but in California, the rich, and this is the fact that is kind of stunning. And when you see people, I think different presidents and presidential candidates have said, we basically shouldn't tax the bottom 25 % of the country. It's because there's no money there is why they say it. In California, the richest 1 % pay 40 % of the taxes. The richest 10 % pay 70 % of the taxes. So basically rich people are paying all the taxes. Might not be enough, might not be fair.

31:22But there it is. And so this November, California will vote on the Prop 40 billionaire's tax in California. We will see what happens. Stay tuned. That's it. That's your update on the California billionaire's tax. It's on the ballot. Thank you so much for listening. Talk to you next time.