Alexis Ohanian, co-founder of Reddit Inc. (NYSE: RDDT), has publicly criticized California’s proposal to implement a 5% tax on billionaire wealth, cautioning that such a measure may produce costly consequences, particularly for the state’s dynamic startup ecosystem.
In a recent series of posts on the social media platform X, Ohanian addressed the growing economic divide, recognizing it as a profound challenge demanding effective solutions to uphold the integrity of the republic. Nonetheless, he firmly stated that taxing unrealized gains is not the correct remedy.
The tax proposal under scrutiny, formally known as the 2026 Billionaire Tax Act, seeks to levy a one-time 5% tax on the net worth of billionaires residing in California. Its intention is to generate approximately $100 billion to bolster funding for essential public services across the state. The initiative also outlines stringent penalties for any underreporting, ranging between 20% and 40% of the owed tax amount, while aiming to close loopholes to prevent avoidance.
When engaged by a commenter questioning how this proposed wealth tax differs from existing property taxes—which are imposed based on the total unrealized value of an asset—Ohanian expressed deep concern over such reasoning.
He explained that equating the taxing of unrealized startup equity to taxing real estate illustrates a fundamental misunderstanding. Real estate assets generally retain their value over time without expiring worthless, whereas the vast majority of startups ultimately fail or lose their valuation. Ohanian likened taxing unrealized startup equity to taxing lottery tickets based on potential winnings, which underscores the speculative and high-risk nature of startup investments.
Echoing these sentiments was California-based venture capitalist Chamath Palihapitiya, who holds a net worth estimated at $1.2 billion as reported by Forbes. Palihapitiya emphasized on X that California’s real challenge does not lie in generating adequate revenue, but rather in excessive spending. He conveyed skepticism about the state’s fiscal management, asserting that politicians and their affiliates divert tens of billions of dollars annually without proper oversight or accountability, pointing to California’s failure to conduct thorough audits.
Palihapitiya warned that should such tax policies be enacted, California risks losing its stature as a leading, vibrant economic hub. He predicted that billionaires may relocate to other states, triggering a cascade effect where millionaires and middle-class residents might follow suit, potentially eroding the state's broader tax base and economic vitality.
Neither Ohanian nor Palihapitiya provided additional comments when approached for further clarification. Updates will be included if new statements are received.
The proposed wealth tax has sparked considerable debate concerning its capacity to address economic inequality versus its implications on entrepreneurship and wealth retention within California. The measure’s design to generate substantial revenue through a 5% levy on billionaire net worth, augmented by penalties and anti-evasion provisions, marks a significant policy shift with potential wide-reaching consequences.