Mark Zuckerberg’s deal to stay in California cheered by wealth tax campaign

Campaigners for a wealth tax on California’s billionaires have seized on Mark Zuckerberg’s agreement to stay in the state as evidence in support of their cause, as the wildly expensive ballot fight enters its final days.

Meta this week announced a change to its capital structure under which Zuckerberg will be allowed to sell enough shares to cover his potential $11bn tax bill without diluting his control of the company after he warned them he was considering leaving the state.

The deal, under which Zuckerberg promised to stay in California for eight years to be close to Meta’s headquarters and AI engineers, undercuts arguments against the billionaire tax, according to the union boss who forced the proposal on to the ballot on November 3.

“It shows the reasons to stay in California are more compelling than the reasons to leave,” said Dave Regan, president of SEIU-UHW, which represents healthcare workers.

Californians will vote on whether to approve a one-off 5 per cent wealth tax on the roughly 250 billionaires who lived in the state on January 1, of whom Zuckerberg is one of the richest.

If approved, it would be the first wealth tax of its kind in the US and, supporters hope, a harbinger of the policy becoming popular nationwide.

But it has provoked an expensive and ferocious opposition campaign funded in large part by Google co-founder Sergey Brin and fellow billionaires, and split the state’s Democratic establishment. Governor Gavin Newsom opposes the measure, saying a California-only wealth tax would cause entrepreneurs to leave the state.

For proponents of the tax, Meta’s decision shows the deep roots of the tech and AI sectors in California and the state’s pool of talent make it impractical for many businesses — or their leaders — to move elsewhere.

The committee of Meta’s board that negotiated with Zuckerberg argued it was vital for the company to have its chief executive managing the business in person.

Zuckerberg had threatened to sell his home in Palo Alto and leave the state, complicating long-running discussions about how Meta could sell shares to raise potentially hundreds of billions of dollars to fund its AI investments without diluting his 61 per cent voting control.

Meta on Wednesday said it was creating a new class of stock with no voting rights. The board originally planned to bar Zuckerberg from selling just non-voting shares so as to keep the same ratio between his economic and voting interests in the company.

However, he negotiated permission to sell enough non-voting shares to cover his potential wealth tax bill in talks that Meta described as “contentious”.

“It puts to bed the idea that he is going to move,” said Gabriel Zucman, an economist who helped draft the billionaire tax proposal. “Billionaires agitate and threaten to leave — that’s what they do — but look at what actually happens. The mobility response is orders of magnitude smaller than you would imagine based on their threats and fear-mongering.”

A Citrin-Politico poll this week put support for the billionaire tax at 46 per cent, with 43 per cent opposed. Polls suggest a spoiler proposal could pass with a higher level of support, which would invalidate the billionaire tax even if it were to win a majority.

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Some billionaires, including Brin, have left the state to avoid the tax. Stanford economists opposed to the tax calculated this week that not only would it fail to raise the $100bn claimed, but it would cost California $39bn in lost future tax revenue.

Silicon Valley figures have also argued it is unfair to levy a tax based on unrealised capital gains because it could force billionaires to sell stock and potentially lose control of their companies.

Jared Walczak of the right-leaning Tax Foundation said Meta’s deal showed that even a one-time tax puts founders’ control at risk and requires special measures. “If the wealth tax passes, anyone founding a start-up will have to weigh the possibility of a permanent wealth tax in the future, and many of them — and the venture capitalists and other investors funding them — won’t want to risk it,” he said.

Zucman and Regan, however, said Zuckerberg’s situation demonstrated there were ways to resolve liquidity issues facing taxpayers whose wealth is tied up in their companies.

“It is not about the money,” Regan said. “It is about how the shares are structured so he can continue to dominate the company — and there’s a fix for that.”