A 5% one-time tax on paper wealth turns a valuation into a wire transfer

Mark Cuban and Representative Ro Khanna traded posts over a weekend about Proposition 40, a California ballot measure that would impose a one-time tax of up to 5% on the covered assets of people and trusts worth more than $1 billion, and which is scheduled to go before voters in November ^{[1] [2]}. The fight matters less as a Democratic Party spat than as a preview of the modelling problem it creates: for anyone whose net worth is stock in a company that has not sold, an assessed valuation becomes a payment date.

Khanna's pitch is straightforward. In a video on X he said the California Democratic Party and the California Labor Movement had joined him and Bernie Sanders in supporting a 5% wealth tax on 250 California billionaires, and that passing the initiative would keep millions of working- and middle-class Californians from losing health care ^[3]. The measure, per Fortune's account, would ask the state's richest residents to hand over billions of dollars to fund health care and other public programs ^[4].

Cuban's objection is a liquidity objection, not a rate objection. He wrote that even when a startup raises a billion dollars, little if any of that money reaches the founders, who are "cash poor, stock rich" ^[13]. He asked how founders would produce potentially hundreds of millions without selling, pulling money out of their companies, or selling stakes, and whether the answer was to "make them borrow money against their shares, if they can" ^[14]. The state's own Legislative Analyst's Office notes that billionaire wealth can consist of stocks, businesses and other investments rather than cash, which makes a wealth tax fundamentally different from an income tax ^[12].

Run the arithmetic at the threshold. At the top rate described, a $1 billion paper position implies a $50 million cash liability ^[15]. That is a financing event, not a tax filing, and the source material does not specify how covered assets would be valued or on what date.

Khanna's answer was a state-run credit facility: founders could pledge shares to California and receive a non-recourse government loan to pay the tax, with a limited term such as ten years, after which the founder either repays in cash or the government takes the pledged shares ^[5]. Cuban called it insane, pointing out that the state would be lending money to founders so they could immediately hand it back, and that if a founder could not repay, California would end up a shareholder in a private company ^{[6] [7]}.

Cuban also priced his own response. If the measure passes, he wrote, "only idiot startup founders stay in Cali," and he said he would make not being in California a prerequisite for an investment, naming Dallas, Pittsburgh and Indiana as places he has backed before ^[8]. He has opposed taxes on unrealized gains consistently, including in response to a 2021 ProPublica investigation, while serving as a high-profile surrogate for Kamala Harris in 2024 ^{[9] [10]}.

Watch the November vote, and watch whether any other investor writes a domicile condition into a term sheet the way Cuban says he will ^[8]. Watch, too, for detail on the pledged-share mechanism: a non-recourse loan against private stock is an option written by the state, and the source material describes its term but not its price.