Why ‘liberal’ Ro Khanna wants to lend money to – Latest News
There are a lot of issues with California’s proposed “billionaire tax,” Proposition 40. One of the most important is how a billionaire would possibly really pay it.
Tech founders normally have their wealth tied up of their firms. And they might not simply sell their shares to pay large tax payments.
A founder can own, say, 20% of a personal company valued at a number of billion {dollars}, and due to this fact be a billionaire on paper, whereas having nowhere close to $50 million in money, a lot much less the liquidity obligatory to pay a 5% wealth tax with out promoting or borrowing towards the company.
There are a lot of issues with California’s proposed “billionaire tax,” Proposition 40. One of the most important is how a billionaire would possibly really pay it. Shannon Finney/NBC by way of Getty Images
So how would such a billionaire pay it?
This week, whereas debating billionaire Mark Cuban on social media, Rep. Ro Khanna got here up with a horrible concept: that the federal government ought to in some way lend money to billionaire entrepreneurs to pay the wealth tax.
The founder would pledge shares, California would finance the tax fee by means of a loan, and roughly 10 years later the founder would both repay the loan, or the state authorities would seize the shares.
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And so Prop. 40 isn’t simply a “tax.” It’s one thing close to obligatory state possession of growing companies.
Cuban responded that Khanna’s proposal would pressure founders and traders to depart California to keep away from being pressured to take out large loans or give up their firms. Cuban added that he himself would inform founders to depart California earlier than he would invest a penny of their firms, if the measure passes this November.
There can be different results as nicely. Let’s suppose you’re a latest Stanford graduate, like myself, and your startup is value $300 million, and growing quickly. You don’t wait till the morning Forbes declares you a billionaire to take into consideration California tax residency. You depart ASAP.
This week, whereas debating billionaire Mark Cuban on social media, Rep. Ro Khanna got here up with a horrible concept: that the federal government ought to in some way lend money to billionaire entrepreneurs to pay the wealth tax. Ron Sachs – CNP for NY Post
The actuality is that people who’re profitable within the business world (and their attorneys and accountants) begin serious about financial dangers for years beforehand. That creates a probably monumental choice impact: The people most probably to depart California are exactly the people whose wealth California hopes will grow enough to tax.
The proven fact that the state may finish up seizing the shares of founders who can’t repay their loans signifies that the state may very well be taking possession of firms that may be nugatory, down the street.
In financial phrases, the state has the draw back related to the tax legal responsibility, and little or no of the upside.
The ostensible purpose of Prop. 40 is to raise income for healthcare. But if the state lends a founder $50 million to pay a $50 million tax invoice, the online money income to California in Year One is actually $0. The state is utilizing its own funds to pay itself. It supplies zero fast money for healthcare.
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Rep. Ro Khanna, D-Calif., speaks at a Martin Luther King Jr. Day commemoration on the South Carolina Statehouse on Monday, Jan. 19, 2026, in Columbia, S.C. (Copyright 2026 The Associated Press. All rights reserved) AP Photo/Meg Kinnard
California would possibly already be studying how expensive Prop. 40 is perhaps. Recent analysis by my Hoover Institution colleagues means that fleeing billionaires have already taken practically 30% of the wealth focused by the “billionaire tax” out of the state. My colleagues additionally warn that the tax would accumulate roughly $40 billion, reasonably than the $100 billion marketed.
More importantly, California’s billionaires presently pay an estimated $3.3 billion to $5.8 billion annually in state income taxes. Once you account for the longer term income-tax income misplaced when billionaires depart, the wealth tax may really finish up costing California money.
Khanna is posturing forward of a seemingly 2028 presidential run, having not too long ago morphed from a pro-business Silicon Valley Democrat to a progressive, socialist Bernie Sanders Democrat.
California doesn’t need to turn into a enterprise lender to its billionaires. That’s a unusual form of socialism. And it’s doomed to fail.
Jon Hartley is a coverage fellow on the Hoover Institution and an assistant professor of economics on the UT-Austin School of Civic Leadership.
