California is additcted to taxation

Think taxes in the Golden State are too high? You are not alone. Apparently, Steve Jobs agrees with you. BusinessWeek recently reported that Cupertino-based Apple has decided to set up a company, Braeburn Capital, in Nevada to manage its cash and short-term investments. Incorporation in Nevada has significant tax advantages, as Nevada has no corporate income tax, has no capital-gains tax, and doesn’t share information with the IRS. California, on the other hand, has corporate income, capital gains, and franchise taxes, all in the neighborhood of 9 percent.

Apple is hardly the first business to leave California for “greener” pastures. Numerous surveys in recent years have revealed that many California companies are moving to other states because of the high costs of taxes and regulations. According to the Nevada Commission on Economic Development, 37 businesses left California in favor of Nevada during 2004, at least in part because of the favorable business climate.

Small-business owners are particularly hard hit by California taxation. According to the California Taxpayers’ Association, the richest 10 percent of earners pay almost 75 percent of the entire income tax revenue in the state, and most of these are small-business owners. Thus, under California’s backward tax policy, the very entrepreneurs responsible for economic growth and prosperity are being punished the most severely.

Various studies comparing economic freedom and tax policies across the nation confirm what an increasing number of individuals and businesses have come to realize: California’s taxes are overly burdensome and are stifling economic growth in the state.

The Pacific Research Institute’s 2004 U.S. Economic Freedom Index took a look at 143 variables to measure states’ economic freedom. These measures were divided into five categories: fiscal, regulatory, welfare spending, government size and judicial (property rights). According to the survey, California ranked 49th overall, ahead of only New York. Among the subcategories, it placed 48th in fiscal, 48th in welfare spending, and dead last in regulatory.

Similarly, the Fraser Institute in Canada and the National Center for Policy Analysis studied economic liberty among the 50 states and 10 Canadian provinces in their 2005 Economic Freedom of North America report. These organizations analyzed ten variables in three categories (size of government, takings and discriminatory taxation, and labor market freedom) and found that California ranked 43rd among the states.

Yet another study by the Tax Foundation released in February compared the burdens of states’ corporate, individual, sales and gross receipts, and unemployment insurance taxes, as well as a wealth index. Once again, California proved lacking, placing 40th overall on the State Business Tax Climate Index.

Unfortunately, things are even worse for individuals than they are for businesses. California ranked 47th in terms of individual taxes, largely because its 10.3 percent rate on income over $1 million is the highest marginal rate in the nation.

You might think this situation would be reason to shy away from additional tax increases, but, alas, even more tax hikes may be on the way.

State Treasurer and Democratic gubernatorial candidate Phil Angelides has said that, if elected governor, he would raise taxes on the highest income earners to give more money to K-12 education. This would be on top of the $3 billion increase in education spending last year and the $4 billion increase proposed by Gov. Schwarzenegger this year.

And that’s not all. Angelides also supports Rob Reiner’s Proposition 82, a June ballot initiative that would increase income taxes 1.7 percentage points on individuals making more than $400,000 a year ($800,000 for families) to raise $2.5 billion for a boondoggle universal preschool program. Recall that Reiner was also behind last year’s percentage-point income-tax surcharge for mental health subsidies and the 50-cents-per-pack cigarette tax increase of the late 1990s for children’s health care.

Given California’s tax-happy political culture, it is no wonder the wealthy and the successful are leaving the state in droves. According to the Wall Street Journal, the number of Californians reporting million-dollar incomes plummeted from 44,000 in 2000 to 25,000 in 2003 — at a cost of $9 billion in lost tax revenue. Even the stock market downturn after the “dot-com” bubble burst cannot account for such a dramatic decline.

It is time policymakers finally learned the lesson of the early 1990s, when an increase in the top income tax rate to 11 percent elicited a mass migration of the wealthy to more friendly environs, precipitating a fiscal crisis. Less than a decade later, it appears California is intent on repeating that costly mistake.

CaliforniaCalifornia NewsOpinion

If you find our journalism valuable and relevant, please consider joining our Examiner membership program.
Find out more at www.sfexaminer.com/join/

Just Posted

A proposal for a Trader Joe’s location in existing retail space in the bottom floor of the 555 Fulton St. building was up for a vote at the Planning Commission on Thursday, July 22, 2021. (Kevin N. Hume/The Examiner)
Trader Joe’s approved for Hayes Valley, bringing long-awaited grocery store

New Seasons Market canceled plans at 555 Fulton St. citing construction delays

Gov. Newsom wants $4.2 billion to finish the Central Valley link for the bullet train, but legislators aren’t sold. (Illustration by Anne Wernikoff, CalMatters; iStock; CA High Speed Rail Authority; Shae Hammond for CalMatters)
Bullet train budget battle: Should California spend more on urban transit, not high-speed rail?

By Marissa Garcia CalMatters High-speed rail was supposed to connect California’s urban… Continue reading

Cooks work in the kitchen at The Vault Garden. (Courtesy Hardy Wilson)
Help wanted: SF restaurants are struggling to staff up

Some small businesses have to ‘sweeten the pot’ when hiring workers

Gov. Gavin Newsom speaks at Ruby Bridges Elementary School in Alameda during a March 2021 press conference. (Credit Ed Reed/EdSource)
How California plans to deter costly special education disputes

Fund is meant to help parents and schools settle differences before heading to court

Hundreds of Britney Spears fans and supporters rallied in support of ending her 13-years-long conservatorship and the removal of her father, Jamie Spears, as her conservator, at the Los Angeles County Superior Courthouse on July 14, 2021. (Photo by Ted Soqui, SIPA USA via AP Images)
The Britney effect: How California is grappling with conservatorship

By Jocelyn Wiener CalMatters However improbable, this has become the summer we… Continue reading

Most Read