Ever wonder why so many California-based corporations are leaving the state? Is there perhaps a clear and actionable reason? Word is that Democrat state lawmakers have proposed legislation that will permit The Golden State to help themselves to some of the tax savings provided to corporations from the new tax reform legislation. California’s lawmakers claim that their new plan is designed to blunt the impact of the tax reform bill on high-income earners.
In reality, this bill would only punish corporations for receiving tax cuts from the federal government. Moreover, it will have a negative impact on the growth of California’s economy.
But Wait — there’s more!
According to The San Francisco Chronicle, the proposed legislation would require companies earning more than $1 million to give half of their tax savings to the state. The state would then use this tax income to fund programs that “support low-income and middle-class families.
Assembly members Kevin McCarthy and Phil Ting claim that this amendment will provide some relief for individuals who have been adversely affected by the GOP’s tax reform legislation.
“Trump’s tax reform plan was nothing more than a middle-class tax increase,” Ting wrote in a statement. “It is unconscionable to force working families to pay the price for tax breaks and loopholes benefiting corporations and wealthy individuals.”
In California, wealthy individuals could see a tax increase as the GOP tax reform legislation caps state income taxes and local property tax write-offs on the federal tax return at $10,000. California’s state and local taxes are some of the highest in the nation, which means those earning higher rates of income will not be able to take advantage of as big of a write-off as they have previously. In 2016, the average state and local tax write-off was $22,000.
Make was for the Cali-Exodus
This story, dear reader, is why a significant number of corporations are fleeing California. Indeed, a report released by Joseph Vranich, a business relocation expert with Spectrum Locations Solutions, revealed that at least 1,687 companies left the state of California between 2008 and 2015. However, this isn’t the worst of it. The number Vranich provides only includes those companies whose relocations were reported in the press. Among business site-selection experts, a common rule of thumb is to conclude that for every relocation that is reported, there are five more that haven’t become public knowledge. In light of this, it is possible that as many as 10,000 companies have left the state.
The companies that have jumped ship include Nestle, Toyota, Northrop Grumman, and several other high-profile corporations. It doesn’t take a Rocket Scientist to figure out that California is one of the toughest places to do business in America. The costs to operate a business in California, according to Vranich, are so much higher than in other states as a result of the state’s tax and regulatory policies.
Learning Its Lesson?
It’s not just businesses that are leaving California. Families are moving out of the state in droves. In November 2017, The OC Register reported that California became a national leader in outbound moves. According to The Los Angeles Times, it is reported that the reason so many Californians are leaving is that they are seeking a more affordable cost of living.
As one of the many Californians who has left the state for greener pastures, I can attest that living in Austin, Texas is significantly more affordable than in the Golden State. And the BBQ is delicious.
When lawmakers complain about Trump’s tax reform legislation, they are missing the point. They blame the tax increases on high-income earners, but the truth of the matter is that these individuals are victims of unreasonably high state and local taxes. California’s leadership has not yet learned that higher taxes only harm the economy.
Punishing businesses for earning more income and receiving tax cuts also harms individuals who could benefit. We have already seen the reverse effect from the many companies who have increased salaries and issued bonuses to their workers as a result of the GOP’s tax reform legislation. Companies like Apple, Inc. are now moving a significant portion of their operations back to the United States.
Missing the Benefits
What Democrats don’t understand is that when corporations are allowed to keep more of their money, everyone benefits. California’s economy is the 6th largest economy in the world, yet it has one of the highest rates of income inequality in the nation. It also has the country’s highest poverty rate.
The state’s government can’t hope to tax its way out of its problems. The solution is to empower corporations to operate their businesses, hire more workers, and increase pay on their own, without saddling them with massive taxes. Unfortunately, this is not likely to happen anytime soon — unless Californians decide that they have had enough of the Democrats and use their voting power to effect real change.