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Why Do Companies Want to Be Headquartered in a High Tax State Like California?

2 points by SQL2219 10y ago

wahern 10y ago
The real question is, why not? That is, challenge yourself to make the case that a high tax state substantially effects the bottom line. And specifically, _your_ bottom line, not some contrived thought experiment. The details often matter more than anyone ever thinks. IMO, people obsess too much about taxes. Between the states with the highest and lowest tax burdens, you're taking about maybe a 5% difference in net income. (I'm spit-balling.) From a theoretical standpoint 5% should make a substantial difference, but in reality it's swamped by innumerable confounders, especially in high growth or rapidly moving industries. I can't say I enjoy the tax burden being a resident and home owner in San Francisco, California. Certainly I like to fantasize, like any red-blooded American, about moving to a rural area and homesteading on a secluded piece of land. But my actions speak louder than my fantasies. Also, it just might be the case that jurisdictions with higher taxes are actually doing something positive with those taxes. (Or at the very least their economies can sustain a higher burden, which is almost the same point.) I mostly grew up in the rural South, but we were originally from Chicagoland. Adults around me always complained about how high taxes were in the North, and how corrupt and inefficient the unions were. And yet every time we visited Chicago I was astounded at the public works projects, especially road construction. They were doing in days or weeks what took months or years to accomplish in Florida and Alabama. And there seemed to be a lot more middle-class blue collar workers in Chicagoland. (A construction worker or truck driver in Chicagoland could be a homeowner and saver; people like that in my town lived in trailers.) I noticed this even as a child. It also wasn't lost on me that the adults around me ended up in the South chasing dreams of easy work and low taxes; instead we just ended up more destitute then ever and basically stuck. (Which isn't to say you cannot become economically stranded in the middle of a rich, urban economy.) One life lesson I took away from my upbringing was that people obsesses over taxes and inefficient government out of all proportion to the real relevance of those things wrt economic success. It's a form of being penny wise and pound foolish. Likewise, people focus too heavily on high-profile corporate tax dodges and think it's what everybody should be doing. But those high-profile cases take place in very specific contexts, often dealing with very specific tax scenarios. The returns on investment in tax avoidance for the vast of majority companies, big and small, would rarely compare. Now, I know a few very rich individuals who moved out of California because of the tax (or rather, lack of tax break) on gains from stock options. But I also know more who stayed. I think that's an area where things might actually matter. But I'm not at all convinced. Rather, it just highlights that the only place it might matter is where you're talking about a 20% or greater difference in take-home. In any event, for the vast majority of people it's irrelevant, especially because not enough are leaving to make a substantial difference, AFAICT, in the venture capital environment. Which, again, should be telling. When reality doesn't track the theory or model, one's first instinct should be to question the model, not ponder what's wrong with reality.

2 points by SQL2219 10y ago

The real question is, why not? That is, challenge yourself to make the case that a high tax state substantially effects the bottom line. And specifically, _your_ bottom line, not some contrived thought experiment. The details often matter more than anyone ever thinks. IMO, people obsess too much about taxes. Between the states with the highest and lowest tax burdens, you're taking about maybe a 5% difference in net income. (I'm spit-balling.) From a theoretical standpoint 5% should make a substantial difference, but in reality it's swamped by innumerable confounders, especially in high growth or rapidly moving industries. I can't say I enjoy the tax burden being a resident and home owner in San Francisco, California. Certainly I like to fantasize, like any red-blooded American, about moving to a rural area and homesteading on a secluded piece of land. But my actions speak louder than my fantasies. Also, it just might be the case that jurisdictions with higher taxes are actually doing something positive with those taxes. (Or at the very least their economies can sustain a higher burden, which is almost the same point.) I mostly grew up in the rural South, but we were originally from Chicagoland. Adults around me always complained about how high taxes were in the North, and how corrupt and inefficient the unions were. And yet every time we visited Chicago I was astounded at the public works projects, especially road construction. They were doing in days or weeks what took months or years to accomplish in Florida and Alabama. And there seemed to be a lot more middle-class blue collar workers in Chicagoland. (A construction worker or truck driver in Chicagoland could be a homeowner and saver; people like that in my town lived in trailers.) I noticed this even as a child. It also wasn't lost on me that the adults around me ended up in the South chasing dreams of easy work and low taxes; instead we just ended up more destitute then ever and basically stuck. (Which isn't to say you cannot become economically stranded in the middle of a rich, urban economy.) One life lesson I took away from my upbringing was that people obsesses over taxes and inefficient government out of all proportion to the real relevance of those things wrt economic success. It's a form of being penny wise and pound foolish. Likewise, people focus too heavily on high-profile corporate tax dodges and think it's what everybody should be doing. But those high-profile cases take place in very specific contexts, often dealing with very specific tax scenarios. The returns on investment in tax avoidance for the vast of majority companies, big and small, would rarely compare. Now, I know a few very rich individuals who moved out of California because of the tax (or rather, lack of tax break) on gains from stock options. But I also know more who stayed. I think that's an area where things might actually matter. But I'm not at all convinced. Rather, it just highlights that the only place it might matter is where you're talking about a 20% or greater difference in take-home. In any event, for the vast majority of people it's irrelevant, especially because not enough are leaving to make a substantial difference, AFAICT, in the venture capital environment. Which, again, should be telling. When reality doesn't track the theory or model, one's first instinct should be to question the model, not ponder what's wrong with reality.