Wealth Taxes Could Kill Privately-Owned Companies

The piece argues that wealth taxes like California’s Proposition 40 threaten privately held, founder-controlled companies by forcing illiquid ownership stakes to be valued and monetized to pay tax bills. Using In‑N‑Out and a hypothetical founder, Alice of Acme, it shows how a single small-priced secondary transaction can be used to impute multi‑billion dollar valuations that founders cannot realistically liquidate without selling large blocks of shares. Practical frictions - transfer restrictions, rights of first refusal, board or regulatory approvals, and buyer leverage - mean satisfying a tax liability often requires diluting control, inviting outside investors, and changing governance and strategic priorities rather than merely reducing “consumption” wealth.

The central claim is that ownership is governance: much of a founder’s value derives from the authority to steer strategy, preserve culture, and commit capital to long‑term missions, not from cash reserves. Once a founder accepts outside capital or is compelled to sell, fiduciary duties and shareholder expectations reshape the institution toward profit maximization. The Craigslist/eBay litigation is invoked to show courts enforce those duties. Thus, wealth taxation that treats illiquid control stakes as fungible wealth risks dismantling founder sovereignty, altering business models, and destroying the institutional sources of the very value the tax seeks to capture.