Do Businesses Leave California Because Of Taxes?

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.

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. 

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?

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.     

8 thoughts on “Do Businesses Leave California Because Of Taxes?

  1. Prop 13 doesn’t affect business the way you think. It makes it more expensive to start a business in Irvine then in established areas like Anaheim. “New” companies don’t buy land and build a building. It just doesn’t happen. They Lease. The Stadium area around Angel Stadium has the best leases in Orange County because it’s all old established industrial and office buildings. I do see your point. It does retard new development in older areas, but then again, it makes it easier to start a company in Anaheim if you’re paying 1.25$ a square foot, rather than 3.00$ a square foot in Irvine. If you repeal 13 for commercial. Then intercity and older communities would lose some of their business due to higher leases. If Anaheim goes up to 2$ a square foot and Irvine down to 2.50$. It makes hot cities hotter and cold cities colder.
    I don’t believe anything CBP says! I have tried three times to post responses and comments on their site and they won’t post them. One was an exact copy from a post I put up here. You posted it within minutes and they didn’t post a thing. After 2 hours I posted “WOW great article!” and it was posted in 2 minutes.
    However, if a person earns 11,100 a year and takes a standard deduction then they don’t pay a dime in federal or state income tax. Food is not taxed so unless they are spending a bunch of money on new cars and cloths then Sales tax should be close to nothing. A person that drives 15 miles a day to work would spend about 8,000 in gas so I’m guessing they aren’t counting the gas tax. It makes no sense and when I try and look up a source. CBP just says Institute for taxation. All they have to do it show how they got that number. Ironically 25% of the board of CBP is employed in Education. If I turned in a cute PowerPoint slide with no back up. I’d get an F-. They could be including 7.65% for SS but that is a reserve for the individual, its a tax but not a tax that government is suppose to spend on anyone else but you.
    This brings me to my favorite topic. Evil corporations. Gee Whiz, what are we suppose to do. Companies that earn their money off California have no choice. This would be corporations like grocery stores, clothing stores, banks, etc. But small companies like mine are considering leaving to Nevada. I employ around 20 people all highly paid and the money we ALL could save in state tax and cost of living would be more than enough for us to leave the state. My small company, between all the Income, property, and sales tax that we all spend would cost this state a half million to a million in taxes. The highest tax bracket in California starts at 47,000 and I have one part time employee that makes less than that. So that means everyone in my company pays 9.55% is state tax (I know it’s a progressive tax), 8.75% sales tax, 8.84% corporate tax and the oldest person here is 40 so everyone that owns a house is paying high property tax. That’s a lot of percentages! And it doesn’t include all the extra taxes for car registration, gas, etc.
    Please tell me what “corporations” have done to you! I own a corporation; I pay my taxes like everyone else. I also own 100% of the stock of the corporation. If I choose not to “bonus” myself at the end of the year and keep cash in my company then I pay 8.84% on the profits. For example, if I make 110,000 total profits before I pay myself, then I pay myself 100,000 then I pay my taxes like everyone else. That leaves me with 10,000 in “reserve” for next year. But I do have to pay 884.00 in tax on that money. Isn’t that fair? Btw, if I need that money next year then I pay myself with post tax money. I actually pay MORE than the average person with a job of equal salary.
    The companies that are in jeopardy of leaving the state are those that compete with companies from other states. I make and sell software if my costs are 10% or 20% higher than a company from a lower taxes state, then my profits are lower and I may need to leave the state to compete. Put your foot down all you want. I will take my million dollars a year tax base and leave the state for a place that wants me. If we have the 4th highest corporate tax rate, and there is only 1% difference from the highest tax rate. WHERE WOULD YOU PUT THE CORPORATE TAX! Double it? Even if you didn’t lose a single evil corporation, you would only raise 10 billion. We are 42 billion in the hole.

  2. I run a business here, and take my word for it…. its the taxes and regulation.

  3. Dear Jim,
    I have read this website over the past few years. It is obvious that the authors are so wedded to the liberal agenda that the consequences of their actions are ignored. My wife and I are both engineers and we left California a few years ago. Like the author says, housing cost was definitely part of it. but, the fact that we were paying over $800/month in state income taxes and now pay nothing was a big incentive to move to Texas. Of course, what the authors don’t comment about is that a lot of the reason why housing is so costly here is because of government policies (and I don’t mean prop 13). Until California faces facts, people are just going to move out.

  4. “$800/month in state income taxes”
    Would require an income well above $300,000 a year.

  5. Your estimate of income to generate $800/month in income taxes is grossly low. If you go to the state of california tax estimator on the franchis board website, It estimates that a combined income of $120,000 will generate $800/month in state income taxes. This is not surprizing, 9.55% of everythin above $49,000 in adjusted gross income gest to $9600 very quickly (on the order of $100,000 above $49,000).
    It is possible to avoid these taxes if you have maximum deductions (like superlarge California house). However, we did not. So, once again, your simple math is wrong.

  6. It’s been 2 yrs since you claimed that high real estate prices were driving businesses out of California. Now that RE prices have crashed in this state, why are businesses STILL leaving?
    I am starting up a publishing company and it will be domiciled outside CA; probably in South Carolina. I will be hiring a dozen employees, some clerical staff at lower wages and professional staff at competitive wages for the industry. Why am I leaving? I’m simply not willing to put up with California’s anti- business climate. I think you need to wake up and smell the roses…California is simply not a good place to build a business based on unreasonable regulations, high workers comp costs and irresponsible government spending that will likely result is higher taxes.

  7. What? You don’t want the boys in Sacremento telling you how to run your business? How unaltruistic of you.
    who is john galt?

  8. OK… you do the math.
    11.7% of $11,100 is $1298.70
    7.1$ of $1,600,000 is $113,600
    So, the “rich” guy pays over 87X what the “poor” pays, and you expect me to sympathize with the poor guy? They both use the same roads, same air/water, same police, same firefighters, same schools. In fact rich people tend to have fewer children than the poor, so they use less.
    Oh… and the rich guy most likely owns a business and employs some of the not-so-rich.
    Anyways, I have a large nest egg that I have accumulated tax-deferred. I will be moving to Wyoming in a few years just so you california libs cannot tax me when I cash in. I’ll be taking my small, but profitable business with me.
    Stick that in you bong and smoke it.

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