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May 5, 2009

Do Businesses Leave California Because Of Taxes?

-- by Dave Johnson

This post originally appeared at Speak Out California.

There is a myth that businesses and people are leaving California in droves because of taxes.  A recent example is George Will, in California as Liberalism's Laboratory, writing as part of an anti-tax column,

For four consecutive years, more Americans have moved out of California than have moved in. California's business costs are more than 20 percent higher than the average state's.
Notice the obfuscation.  Will cites "costs" and the thrust of his column implies that he means taxes are forcing this exodus.  But the costs that cause businesses to leave California are the high real estate prices, not taxes.  This higher cost of owning and renting in California is, of course, because more people want to live here than other places.

A December LA Times story, More are moving out of California than in, made clear the reasons for the exodus,

The outflow -- last seen during the economic and social struggles of the 1990s -- started when it became too expensive for most people to buy homes in the state, and has kept going throughout the bust with the loss of so many jobs.

[. . .] "This was the epicenter of the housing meltdown," said John Husing of Economics & Politics Inc., a regional economic research firm.

"People started leaving California because of housing prices - particularly younger couples that just couldn't afford to buy a house."


The Public Policy Institute of California studied California job losses in 2007 and released, Are California's Companies Shifting Their Employment to Other States?,
... Given that this shift was sharpest during the economic boom of the late 1990s, it cannot be attributed to business climate problems unless one is willing to argue that the business climate was worse during that period, which strikes us as implausible.
One thing to understand is that taxes are not a cost, because taxes are calculated after the end of the year, all costs are subtracted before calculating the profit, and only profits are taxed.  Salaries and other business expenses are deducted before profits are calculated. Companies that are not making money are not taxed at all. 

Actually there is a tax problem affecting businesses here.  The effect of Prop 13 on commercial real estate gives a tremendous disadvantage to new businesses - the very entities that provide most new jobs.  Commercial property held for a long time has a much lower tax rate, providing advantages over innovative new companies.

Another tax problem (data from California Budget Project) is that the poorest fifth of California's households earn and average of $11,100 a year and pay 11.7% of their income in taxes, while the wealthiest 1 percent bring in an average of $1.6 million and pay only 7.1% of their income in taxes. 

Looking past the surface hysterics there is something disturbing about the implications of this conservative-corporate threat to move companies rather than pay taxes. What does the threat say about their perception of the relationship between the people and the corporations?  After all, who is supposed to be in charge here?

Corporations are creations of our government and We, the People created them to benefit US.  (Why else would we have created them -- to harm us?)  Our laws enable their existence in the first place, our courts enforce the contracts and settle disputes, our police and firefighters protect them, they deliver their goods on our roads, and we educate and train their employees.

We created these entities, and gave them rules.  And now they are telling us that if we ask them to share the gains with us, they will throw a tantrum, pack up and leave?  It sounds like it is time for We, the People to put our foot down and explain the rules: We tell you what to do, not the other way around.     

Click through to Speak Out California and leave a comment.

Posted by Dave Johnson at May 5, 2009 3:00 PM


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