Mark Cuban told Representative Ro Khanna, D-Calif., that he does not "understand business" during a heated clash over California's proposed 5% billionaire wealth tax, warning that the measure could drive startup founders and investors out of the state.

The exchange centered on California's Proposition 40, a controversial ballot measure that would impose a one-time 5% wealth tax on residents with more than $1 billion in assets. The California Democratic Party has endorsed the measure, while a number of notable leaders, including Governor Gavin Newsom, have expressed opposition.

In a video posted on X on Saturday, Khanna made the case for the tax, arguing that it would help preserve healthcare for working-class Californians. He said the "Sacramento establishment" and lobbyists opposing the measure were "blatantly out of touch." A coalition that includes healthcare-worker unions is backing Proposition 40, arguing that a one-time infusion of revenue is needed to protect programs such as Medi-Cal after consecutive years of multibillion-dollar state budget shortfalls.

Cuban — who became a billionaire after Yahoo bought his internet startup Broadcast.com for $5.7 billion in stock in 1999 — responded by arguing that founders of rapidly appreciating startups can become billionaires on paper without having hundreds of millions of dollars in liquid assets available to pay the proposed tax.

"They are the definition of cash poor, stock rich," Cuban wrote on X.

He warned that the measure could push startup founders and investors to leave the state.

"If this passes, only idiot startup founders stay in Cali," Cuban wrote.

California has spent years debating whether its tax burden is already pushing out its wealthiest residents. The state's top marginal income tax rate of 13.3% is the highest of any U.S. state, IRS migration data have recorded net outflows of high-earning households to states such as Texas and Florida in recent years, and Oracle, Hewlett Packard Enterprise and Tesla have all moved their corporate headquarters from California to Texas over that period. European precedent offers competing examples for wealth levies: most countries that once imposed broad wealth taxes have repealed or narrowed them — France limited its levy to real estate in 2017 — while Switzerland, Norway and Spain still maintain them.

Cuban went further, warning that the measure could also influence where he invests.

"I will make NOT being in California a pre requisite for an investment," he continued.

"Ideology is not a strategy Ro," he added.

Cuban, for his part, was among the most prominent business-world supporters of Kamala Harris's 2024 presidential campaign, underscoring that the clash is playing out largely within Democratic-aligned circles rather than along partisan lines.

Khanna, whose congressional district includes much of Silicon Valley, then proposed a workaround for founders whose wealth is largely tied up in private-company stock.

"Why not a non recourse loan for pledged stock as collateral for this situation?" Khanna wrote.

Khanna suggested addressing the concerns of illiquid founders by allowing them to pledge shares in their companies as collateral for a government loan that could then be used to pay the wealth tax. Under the proposal, the loan could remain outstanding for roughly 10 years, after which the founder would either repay the government in cash or the government would take possession of the pledged shares. Because the loan would be nonrecourse, the founder would not be personally liable if the company failed.

Cuban blasted the proposal.

"Ro, that's insane," he wrote.

Cuban argued that California would effectively lend founders money that would immediately be returned to the state as payment of the tax, meaning the arrangement would initially generate no additional cash revenue from those taxpayers.

"What's the point of that?" he wrote.

Cuban also argued that California could eventually wind up owning shares in private companies if founders were unable to repay the loans.

"Cali, You make it. We take it!" Cuban wrote.

Khanna pushed back on Cuban's criticism, arguing that the government would still collect the tax from billionaires with liquid assets.

"The government would still collect from the vast majority of billionaires who are not illiquid," Khanna wrote.

Khanna claimed that 72% of billionaire wealth is held in public stock and said the proposed financing mechanism would be aimed at true "paper billionaires" whose fortunes are tied to illiquid assets. He argued that if a private company succeeds, California would ultimately collect on the loan, while founders would not be personally liable if the company failed.

Khanna then broadened his argument, telling Cuban that ordinary Americans support higher taxes on billionaires.

"Mark, come on a road trip with me around California, Pennsylvania and the country and ask ordinary Americans how they feel about a billionaire tax," Khanna wrote. "Most say, I promise you, why only 5 percent?"

Cuban shot back: "You don't understand business Ro."

He argued that even a successful founder could spend 10 years growing a company, create thousands of jobs and pay hundreds of millions of dollars in federal and state taxes without ever having $250 million in liquid assets available to repay the proposed state loan.

"Is that what you want your state to be?" Cuban wrote.

Khanna continued to push back, arguing that most of the roughly 250 California billionaires who could be affected by the tax do not face the liquidity problem Cuban described.

Cuban responded with his sharpest criticism yet, arguing that forcing startup founders to sell shares to satisfy the tax would punish entrepreneurs who reinvest their wealth into growing their companies, creating jobs and paying employees rather than taking cash out for themselves.

"Ro, this is the biggest f--- you in the history of entrepreneurship. Ever," Cuban wrote.

Proposition 40 is slated to appear on the November 2026 ballot, leaving California voters to decide the measure's fate.

Source: Fox Business