Y Combinator President Garry Tan Claims California's Asset Seizure Tax Imposes 50% Effective Burden on Founders
Garry Tan, President of Y Combinator, pointed out that California's proposed asset seizure tax imposes an effective burden on founders holding high-vote shares that far exceeds the nominal tax rate. He cited an example of a founder holding 50% economic interest and having 20 times voting power, who would need to pay $500 million in taxes on $1 billion in assets at a $10 billion valuation.
Tan stated that the founder would need to pay $500 million out of their $1 billion net assets, while the equity is highly illiquid and cannot be covered by loans equivalent to half of the net asset tax. He believes that academic supporters have not considered the actual financing and exit paths for startups, transforming the nominal 5% tax rate into an effective 50% tax on the founder's equity in this case.
This tax corresponds to Proposition 40, which will be voted on in California on November 3, imposing a one-time 5% wealth tax on about 200 individuals residing in California with a net worth exceeding $1 billion as of January 1, 2026. The tax will be calculated based on the valuation as of December 31, 2026, can be paid over five years, and incurs an annual fee of 7.5%, with 90% of the revenue earmarked for healthcare. Supporters estimate it could raise hundreds of billions to offset federal healthcare cuts.
The terms stipulate that for interests with accompanying voting or direct control, the taxpayer's ownership percentage in the business entity is presumed to be no less than their voting power percentage. In previous discussions, founders holding 3% economic interest but 30% voting power could be taxed based on a 30% valuation. Opponents include several tech billionaires, some of whom have already relocated out of California before January 1, 2026, and the opposition has raised over $200 million.
Founders' equity cannot be quickly liquidated, and the loan market has low acceptance for illiquid private company shares. Funds flow from the founders' net assets to the state government healthcare fund, forcing founders to respond with limited cash or be compelled to dilute their equity. Those with liquidated assets find it relatively easier to pay, while startup founders with high-vote structures are under pressure, and potential movers may reduce California's tax base.
Source: Public Information
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Garry Tan has publicly criticized California's wealth tax proposal multiple times since the end of 2025, stating that it targets unrealized gains and particularly impacts startup founders with super voting rights. Y Combinator produces several unicorns each year, and Tan compares this tax to similar measures in Europe in the 1990s that led to declines in employment and tax revenue. Previously, Larry Page, Sergey Brin, and Peter Thiel have taken actions regarding relocation or asset transfer.
The proposal is driven by healthcare unions, aiming to compensate for federal healthcare funding cuts with a one-time wealth tax. Opponents are attempting to counter its effectiveness through Propositions 41 and 42 and have raised significant funds. Tan emphasizes that founders face taxes before realizing liquidity, which may force equity dilution or relocation from California. The resource mobilization reflects the state government's attempt to extract one-time revenue from high-net-worth individuals' global assets while triggering some taxpayers to adjust their residency early.
Similar wealth taxes in some European countries have led to capital outflows and revenues falling short of expectations. Currently, California is in a phase of concentrated tech wealth driven by AI while facing budget pressures, and the proposal attempts to lock in residency through one-time taxation before the vote.
Essentially, this represents a regulatory change. The state government is expanding the tax base from income to net assets and presumed voting rights through voter initiatives, altering the valuation and payment obligations for private equity. The mechanism is to forcibly extract unrealized value through residency snapshots and global asset assessments while imposing a tax base on high-vote structures that exceeds economic interests, thus creating pressure for forced asset liquidation in the absence of liquidity.
ABAB News · Cognitive Laws
Nominal tax rates do not equal effective tax rates; voting rights amplify the tax base.
Taxing unrealized equity is equivalent to forcing early liquidation.
One-time wealth tax locks in residency, triggering early relocation.