One particularly momentous policy choice has the potential to strip the founders of some of the world’s largest companies of their controlling interests and force them to sell off a significant portion of their shares. This could send stock prices plummeting to the detriment of tech employees and investors of all stripes, including ordinary workers whose 401(k)s would take a beating if Silicon Valley founders had to offload their shares in a hurry.
The poorly drafted initiative creates many scenarios in which tax liability would be vastly more than 5 percent of net worth, but this analysis focuses on six of them:
Valuation can be based on voting interests in a company when they exceed actual economic stakes.
Assessment rules for privately held businesses can substantially overvalue them.
Draconian underpayment penalties for taxpayers and potentially ruinous penalties for their appraisers encourage substantial overstatement of the value of privately held businesses to avoid a dispute with tax authorities.
Presumptive drafting errors on anti-avoidance rules result in taxing significantly more than the amount of the transfers.
Provisions regarding spousal assets and indebtedness to relatives would tax a nonresident spouse’s assets and, in the event of a divorce, would tax the California resident on formerly held assets that had been obligated to the ex-spouse in a divorce settlement.
Deferral regimes have eligibility limitations and impose additional costs, and run the risk of taxing wealth that might no longer exist.
——-
more.