edit: as tsimionescu kindly pointed out below, I misunderstood the 30M threshold. My reasoning seems correct to me but a key premise was wrong, and I agree the proposal is much less onerous than I have painted below:
I personally know multiple startup founders worth $10-$20M on paper who made $120K/year salary for years (or still are.) It’s hardly unusual, startup valuations are high these days, and VCs and the founders themselves want to reinvest in growth, not issuing distributions.
A founder owning 40% at a $50M valuation would feasibly have to double his salary to $240K to afford the $80K/year wealth tax, after paying income taxes on the salary increase in California.
That’s realistically one employee they no longer have the cash flow to hire. A $50M startup may have something like $2M ARR, so if they don’t want to burn investment funds, they could support maybe 8 employees at their ARR level. Knocking out one employee at that size is significant.
Or you could say they should get VC to support hiring more employees. Now the wealth tax is indirectly impacting the founder's equity—forcing you to sell your company.
We can argue whether they should be forced to liquidate a portion yearly for taxes, but let’s not pretend everyone worth $20M on paper can light $80K cash on fire yearly without consequences.
First of all, if I understand correctly, if they are worth less than 30M$ they aren't affected by this tax at all. This alone I think invalidates some of your comment altogether.
So the tax actually says that a founder owning 40% of a $100M valuation would have to $40k per year (0.4% of the 10M that they own over the base 30M0). By your calculation, they would have to pay themselves ~$200k per year to afford that, which would be ~0.5 employees for a company that can afford ~16 (simply doubling your numbers for employees and halving the increases because of the half tax).
This doesn't seem like such a horrible onus on a corporation. Now, if the valuation is wildly off, then perhaps there will be bigger problems - but that would also mean that this law gives better incentives for correct valuations of companies, a win in itself.
I personally know multiple startup founders worth $10-$20M on paper who made $120K/year salary for years (or still are.) It’s hardly unusual, startup valuations are high these days, and VCs and the founders themselves want to reinvest in growth, not issuing distributions.
A founder owning 40% at a $50M valuation would feasibly have to double his salary to $240K to afford the $80K/year wealth tax, after paying income taxes on the salary increase in California.
That’s realistically one employee they no longer have the cash flow to hire. A $50M startup may have something like $2M ARR, so if they don’t want to burn investment funds, they could support maybe 8 employees at their ARR level. Knocking out one employee at that size is significant.
Or you could say they should get VC to support hiring more employees. Now the wealth tax is indirectly impacting the founder's equity—forcing you to sell your company.
We can argue whether they should be forced to liquidate a portion yearly for taxes, but let’s not pretend everyone worth $20M on paper can light $80K cash on fire yearly without consequences.