admin
Representative Ro Khanna’s recent social‑media push for Proposition 40 took a strange turn this week. When critics pointed out that many startup founders are “cash poor, stock rich,” Khanna answered with a bold new fix: a state‑backed, long‑term, non‑recourse loan secured by founder shares so billionaires on paper can pay a one‑time 5% California billionaire tax. The reaction from entrepreneurs — led by Mark Cuban — was swift, loud and not exactly full of praise.
Khanna’s loan idea: how it would work
Under the plan Khanna sketched on X, the state would let illiquid founders pledge their private company shares as collateral for a roughly ten‑year loan to cover the 5% wealth levy proposed in Proposition 40. If the founder can’t repay, the government would take the shares. It’s meant to solve the liquidity problem: wealthy on paper, but no cash to write a big tax check. Sounds reasonable until you think through what it means for taxpayers and startups.
Why the scheme is risky and perverse
The central problem is simple: paper wealth and real cash are not the same thing. Forcing founders to sell or borrow against illiquid stock will push them to cash out or leave. Mark Cuban said it plainly — “cash poor, stock rich” — and warned founders will flee if this passes. Worse, a government non‑recourse loan hands taxpayers downside risk while leaving upside with insiders. The state becomes a de facto venture capitalist with no business plan for valuing stakes, managing conflicts with existing investors, or protecting pensioners from startup failures.
Political fallout and real economic costs
This kerfuffle lays bare the political tradeoffs of the California billionaire tax. Labor groups back Proposition 40, while Governor Gavin Newsom and many business leaders warn about out‑migration and litigation. Even if the measure raises hefty one‑time revenue, it risks scaring off founders, shrinking the tax base, and inviting years of court fights over valuation and residency. Turning the state into a creditor‑cum‑shareholder will also create moral hazard: why build when your reward can be quietly absorbed by Sacramento?
Khanna’s loan workaround proves the point critics have been making: the billionaire tax is a bad idea dressed up in clever accounting. If you like the idea of the government owning slices of Silicon Valley startups and deciding which companies live or die, go ahead and vote for Proposition 40. For everyone else who wants growth, jobs and private investment to thrive, this is a cautionary tale — not a solution. In politics as in business, you can’t fix a bad tax with an even worse bureaucracy.
