California Rep. Ro Khanna is facing an unusual and very public backlash from some of his most powerful long-time supporters in Silicon Valley after embracing a proposed statewide wealth tax aimed at billionaires.
The controversy highlights a growing fault line inside the Democratic Party between progressive calls to tax extreme wealth and the economic concerns of technology founders, investors, and executives who have historically supported Democrats but now warn they may leave the state or withdraw political backing.
At the center of the debate is a proposed ballot initiative that could fundamentally reshape how California taxes wealth and how attractive the state remains to high-growth startups and venture capital.
A Wealth Tax Proposal That Has Split Democrats
Labor groups in California are pushing to place a new ballot initiative before voters that would impose a one-time tax on billionaires living in the state. The measure, known as the 2026 Billionaire Tax Act, is being advanced by the Service Employees International Union–United Healthcare Workers West.
If approved by voters, the proposal would levy a 5% tax on the assets of California billionaires to help offset an anticipated shortfall in the state’s health care budget. The tax would be retroactive to January 1, 2026.
While the proposal is framed as a response to rising inequality and budget pressures, it has ignited intense opposition from the tech community. Many executives and investors argue that the tax would accelerate capital flight from California and undermine the state’s innovation ecosystem.
Khanna has publicly supported the idea, a move that has strained his relationship with Silicon Valley donors and leaders who have backed him for years.
Khanna’s Comments Spark Political Fallout
Last week, Khanna addressed concerns about wealthy residents potentially leaving the state in response to the tax. In a social media post, he referenced President Franklin Delano Roosevelt’s reaction to wealthy critics during the New Deal era, writing that he shared Roosevelt’s “sarcasm of economic royalists when they threatened to leave, ‘I will miss them very much.’”
The comment landed poorly among many in the tech sector.
The backlash was swift and personal, including calls for Khanna to face a primary challenge.
“Ro has done a speed run alienating every moderate I know who has supported him. Including myself,” wrote Martin Casado, a partner at venture capital firm Andreessen Horowitz, in a post on X. “At least that makes voting him the f— out all the more gratifying.”
Garry Tan, the CEO of startup accelerator Y Combinator, echoed the sentiment, writing simply that it is “Time to primary him.”
Campaign finance records show that associates of both Andreessen Horowitz and Y Combinator have been among the top donors to Khanna’s congressional campaign committee, underscoring how dramatic the rupture has become.
Why Silicon Valley Is So Alarmed
One of the biggest concerns driving opposition is that the proposed tax would apply to unrealized gains. That means billionaires whose wealth consists largely of private company stock could be taxed on paper valuations, even if they have little liquidity.
For startup founders, this is not a theoretical issue. Many tech entrepreneurs hold most of their wealth in illiquid shares of private companies that cannot easily be sold without triggering additional tax consequences or harming the business.
“We’re absolutely going to have to figure out how our society adapts to a rapidly increasing wealth gap,” wrote Reddit co-founder and venture investor Alexis Ohanian in a post on Sunday. “But the answer is definitely not taxing unrealized gains.”
Critics argue that such a policy would discourage founders from building companies in California in the first place and could push existing startups to relocate key personnel to lower-tax states like Texas or Florida.
Khanna’s Office Pushes Back
A spokesperson for Khanna sought to frame the congressman as both pro-innovation and supportive of targeted tax reforms.
Sarah Drory, a spokesperson for Rep. Khanna, said in a statement that he is a “passionate supporter of technology and entrepreneurship,” pointing to his role as a co-author of the CHIPS and Science Act, which aims to strengthen domestic semiconductor manufacturing.
Drory added that while Khanna supports a “modest wealth tax on billionaires to deal with staggering inequality and to make sure people have health care,” he also advocates “for commonsense workarounds for startup founders whose companies are not profitable and who have illiquid stock.”
How those workarounds would function in practice remains unclear, particularly if the measure is written directly into state law through a ballot initiative.
Newsom Opposes a State-Level Billionaire Tax
Notably, California Gov. Gavin Newsom has come out against state-level wealth taxes, citing competitiveness concerns.
“You can’t isolate yourself from the 49 [other states],” Newsom said earlier this month at the New York Times DealBook conference. “You’ve gotta be pragmatic about it.”
Newsom, who is widely viewed as a potential presidential contender in 2028, has generally taken a more cautious stance on policies that could accelerate high-income migration out of California.
His opposition highlights that even within Democratic leadership, there is no consensus on whether wealth taxes should be implemented at the state level rather than federally.
National Pressure to Tax the Wealthy Is Rising
Despite resistance from business leaders, public support for higher taxes on the wealthy remains strong. Polling consistently shows that a majority of Americans favor increasing taxes on high-income earners.
A Pew Research Center poll earlier this year found that 58% of respondents support raising taxes on people making more than $400,000 per year. Among Democrats, support climbed to 74%.
That political reality is putting pressure on Democratic lawmakers to take visible stances on wealth inequality, even if it risks alienating traditional donors.
At the same time, Republicans have been making noticeable inroads in Silicon Valley. Tech executives have increasingly engaged with President Donald Trump, who has appointed several technology leaders to advisory and administrative roles within his administration.
Electoral Reality for Khanna
Despite the uproar, Khanna’s immediate political prospects appear secure. He won California’s 17th Congressional District by more than 30 points in 2024, and the deep-blue seat is considered extremely unlikely to flip to Republicans in 2026.
Still, a serious primary challenge could complicate his future ambitions and fundraising efforts, particularly if Silicon Valley donors redirect their support elsewhere.
In a follow-up post on X, Khanna doubled down on his position.
“Yes, we need entrepreneurs to commercialize disruptive innovation,” Khanna said. “But the idea that they would not start companies to make billions, or take advantage of an innovation cluster, if there is a 1-2 percent tax on their staggering wealth defies common sense and economic theory.”
Not everyone agrees.
Vinod Khosla, founder of Sun Microsystems and Khosla Ventures, whose net worth Forbes estimates at roughly $12.6 billion, responded bluntly.
“You are so wrong Ro,” Khosla wrote in a post on X. “Top prospects for generating wealth in the state will almost certainly leave the state. Every advisor would advise every enterprise that gets big momentum to have key people relocate to another state.”
Why This Matters for Investors and the Tech Economy
For investors and entrepreneurs, the debate goes beyond one congressman or one ballot initiative. It reflects a broader question about whether California can continue to balance progressive tax policy with its role as the world’s leading innovation hub.
If the billionaire tax qualifies for the ballot and passes, it could set a precedent that other high-tax states attempt to follow. It could also accelerate shifts in where companies choose to incorporate, hire executives, and deploy capital.
The outcome will be closely watched not only by voters, but by founders, venture firms, and investors deciding where the next generation of high-growth companies will be built.
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