I'm loathe to buy into their marketing and call it a wealth tax, when it's actually an asset tax.
To me, wealth implies surplus. If you have surplus, you can give some of it up and not be immediately hurt (leaving aside losing money set aside for a future rainy day.) But while that's how the proposed propsition is being sold, that's not how it works.
To give an example, let's say I own 50% + 1 of a company I found, which is worth 2B.
Under the text of the proposed law:
"(a) An excise tax is imposed for tax year 2026 on the activity of sustaining excessive accumulations of wealth by applicable individuals with net worth of $1 billion dollars ($1,000,000,000) or more, and on applicable trusts. For purposes of this Part, whether an individual or trust is an applicable individual or applicable trust is determined as of the tax obligation date, and the amount of net worth subject to tax is measured as of the valuation date. For purposes of this Section and for subdivision ( c) of Section 50301 respecting the filing of returns, a married couple shall be considered as one individual.
(b) For individuals and trusts on whom tax is imposed under subdivision (a), the tax imposed is 5 percent of the net worth of such individual or trust. In the case of an individual ( other than a trust) having net worth less than $1.1 billion ($1,100,000,000), the tax imposed by this Section shall be reduced by 0.1 percentage point (but not below zero) for each $2 million ($2,000,000) by which such person's net worth falls below $1.1 billion ($1,100,000,000). In the case of an individual ( other than a trust), who opts to initiate an Optional Deferral Account ("ODA") (pursuant to Section 50304), assets attached to the ODA are not subject to tax under this Section until specified by Section 50304.
(c) Except as provided in subdivision (b), any additional tax payable as a result of this Section or Section 50304 for any tax year shall be reported with, and is due at the same time as, the annual income taxes of a taxpayer under Part 10 ( commencing with Section 17001 ). A taxpayer owing any additional tax imposed under this Section shall have the option either to (1) pay any tax due under this Part along with any income tax owed for the 2026 tax year; or (2)
pay annually in five equal installments commencing in the year the tax is due, with each subsequent annual installment payment also being subject to an annual nondeductible deferral charge of 7.5 percent of the remaining unpaid balance."
So let's assume that my net worth is exactly 1B in USD. If I'm doing my math correctly, I don't think I'm actually subject to the tax, since I'm 100 million below the 1.1B mark, and every 2M gives me a 0.1% point reduction in the 5% tax. 100 / 2 = 50. 50* 0.1 = 5. 5% exclusion effectively nullifies the 5%. So I can be a billionare and not be subject to this tax...
Now, unlike how income tax bands work, I don't get an exclusion of the income below 1B if my total worth is above 1.1B. So at 1.1B, I get socked with 5% on everything (like how the City of Los Angeles takes a 4-5% transfer fee on the entire value of a real estate transaction, regardless of whether you're selling at a loss or profit).
Let's assume that instead of being worth 1B, thanks to being granted some extra stock options for good peformance, I'm actually worth 100M extra as of Jan 1st, 2026. To make things easy, I'm only going to say that the 100M extra is due to options that actually vested - any options that aren't yet vested have zero value.
The raw number is 1,100,000,000.00, and the 5% tax on that is worth 55,000,000.00, 55M, or just over half of my stock options bonus. Remember, as per section (c) above, the asset tax is independent of income taxes. So if I sell my stock options (for the sake of argument, let's assume I can find a secondary market that will value them at the value they were realized at) I owe taxes on them.
California doesn't give a fuck about long term vs. short term capital gains - it's all considered income. So that part of the accounting is easy. And if I already paid taxes on option vesting, I don't need to pay any additional income taxes.
In this scenario, having 100M in stock options vest, because I was at the 1B mark, causes me to effectively get a 55% increase in the income taxes I was already paying on having those stock options, which in California would be something like 14.4% (I'm ignoring Federal taxes here), or 14,400,000.00 (14.4M). Before the asset tax, I'd pay 14.4M on realized options taxes in California, after the asset tax, I'd pay 69.4M.
So that was the "happy example" where the 100M happened to be "extra" money that I would have paid taxes on anyways. I just now have to pay way more (480% more). That's fine, I'll get to write it off on my Federal taxes... oh whoops no, there's a SALT cap. Oh well.
Here's an unhappy example. I have $100k in stock options that vest before the latest funding round. I opt to pay taxes on that (there are some situations where I can defer recognition of income on vested options, but I choose to recognize the income immediately). Let's assume that's my entire income for the year. I pay $5736 in the year 2025, making that an effective 5.736% California tax rate. We work our tails off and succesfully make our funding round on Dec 31, 2025. My 100k in stock options that I already paid taxes on is now worth 100M. My company, which was worth considerably less than 2B, is now worth 2B, and I own 50% plus one share of stock.
Under the old rules, I wouldn't have to pay taxes on the market value of those options until later, but because I've now triggered the 1.1M limit, I'm subject to a full 5% tax on all my assets, regardless of whether they are gains or losses from basis. To pay the $55M I owe, I have to sell my stock options on the secondary market, and I have to sell an additional amount to settle the 14.4% I owe in income taxes on the $55M I just sold, or $7.92M, for a grand total of 62,920,000.00, or $62.92M. that's 10969x increase in taxes, or 1.09M% increase.
You're like, ok fine, boo hoo. Let me hit you with the really fucked up example.
Between when my vested options suddenly pushed me over in the last example (Jan 1, 2026 is the valuation date for purposes of calulating taxes owed), and when my taxes are actually due (let's assume in 2027) while attempting to sell my options on the secondary market, we have a huge down round. My company is no longer worth 2B - in fact, thanks to the fickle whims of fate, we're taking a huge hit (assume I founded an EV startup). Although on paper I was worth 1.1M on Jan 1st, 2026, I'm closer to being worth 100M now, my company value plummeting from 2B to just 200M.
But guess what? I still owe 55M, plus taxes on selling my equity in the company, to the total tune of $62.92M, since that number is based on the valuation post big funding round on January 1st, 2026.
And while yes, I theoretically can defer part of that for up to 5 years, I'm paying the state 7.5% on the remaining balance yearly for the privilege:
"A taxpayer owing any additional tax imposed under this Section shall have the option either to (1) pay any tax due under this Part along with any income tax owed for the 2026 tax year; or (2) pay annually in five equal installments commencing in the year the tax is due, with each subsequent annual installment payment also being subject to an annual nondeductible deferral charge of 7.5 percent of the remaining unpaid balance."
Even so, that's not the worst case scenario. I can sell off the majority of my ownership my company ("Hey Larry Ellison, you interested in buying an EV startup? Please?) to pay off my tax burden, but at least at the end of the day, it is paid, and I still own something in my company.
Here's the worst case scenario.
In our downround, we get shafted, and next thing you know, the company goes under. My options, my shares, they're worth nothing, and I go on unemployment. EXCEPT... it all goes to pay my 55M tax debt on a company that is now valueless. Infinity increase in taxes... California don't care that I'm penniless now... by the letter of the law, I owe "wealth tax" on what I was worth on January 1, 2026, regardless of how much money I have now.
I guess I should have liquidated that $62.92M in options on January 1, 2026, huh?