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

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Campaigners for a wealth tax on California billionaires have used Mark Zuckerberg’s agreement to stay in the state as evidence to support their cause as the hugely expensive election battle enters its final days.

Meta this week announced a change in its capital structure under which Zuckerberg will be allowed to sell enough shares to cover his potential $11 billion tax bill without diluting his control over the company after warning them he planned to leave the state.

The deal, under which Zuckerberg promised to stay in California for eight years to be close to Meta headquarters and AI engineers, undermines the case against the billionaires tax, according to the union boss who forced the proposal to the ballot on Nov. 3.

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

Californians will vote Jan. 1 on whether to approve a one-time 5 percent wealth tax for the roughly 250 billionaires who lived in the state as of Jan. 1, of which Zuckerberg is one of the richest.

If approved, it would be the first wealth tax of its kind in the United States and, supporters hope, a harbinger of the policy’s popularity nationwide.

But it provoked a costly and fierce opposition campaign, financed largely by Google co-founder Sergey Brin and other billionaires, and divided the state’s Democratic establishment. Gov. Gavin Newsom opposes the measure, saying a California-only wealth tax would incentivize entrepreneurs to leave the state.

For tax supporters, Meta’s decision shows that the deep roots of California’s tech and AI sectors and the state’s talent pool make it difficult for many companies — or their executives — to move elsewhere.

The Meta board committee that negotiated with Zuckerberg argued that it was vital that the company have its CEO running the company in person.

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

Meta announced on Wednesday the creation of a new class of shares without voting rights. The board initially planned to prohibit Zuckerberg from selling only non-voting shares in order to maintain the same ratio between his economic interests and his voting rights in the company.

However, he negotiated permission to sell enough non-voting shares to cover his potential wealth tax bill in negotiations that Meta called “controversial.”

“It puts to rest the idea that he’s going to move,” said Gabriel Zucman, an economist who helped draft the proposed billionaire tax. “The billionaires are agitating and threatening to leave – that’s what they’re doing – but look at what’s really happening. The mobility response is an order of magnitude smaller than one would imagine based on their threats and fear-mongering.”

A Citrin-Politico poll released this week estimates that 46 percent support the billionaires tax, compared with 43 percent against. Polls suggest a spoiler proposal could pass with a higher level of support, which would invalidate the billionaires tax even if it gets a majority.

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 $100 billion requested, it would cost California $39 billion in lost future tax revenue.

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

Jared Walczak of the right-wing Tax Foundation said Meta’s deal showed that even a one-time tax endangered founders’ control and required special measures. “If the wealth tax passes, anyone founding a startup will have to evaluate the possibility of a permanent wealth tax in the future, and many of them – and the venture capitalists and other investors who fund them – will not want to take a risk,” he said.

Zucman and Regan, however, said Zuckerberg’s situation demonstrated that there were ways to address the liquidity problems faced by taxpayers whose wealth is tied up in their businesses.

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