5 ms·

California has enormous advantages in intellectual capital that outweigh a high tax rate. Imagine it is 2007 and you can choose to invest in Apple and receive

by MarkMc 10y ago

California has enormous advantages in intellectual capital that outweigh a high tax rate. Imagine it is 2007 and you can choose to invest in Apple and receive 60% of profits, or Samsung and receive 100% of profits. What's the better investment?

opo 10y ago
>...Imagine it is 2007 and you can choose to invest in Apple and receive 60% of profits, or Samsung and receive 100% of profits. What's the better investment? Imagine it is 2007 and you can choose to invest in Yahoo and receive 60% of profits, or Samsung and receive 100% of profits. What's the better investment?
- MarkMc 10y ago
  That's a good point. But surely you accept that California has some inherant advantage? If the effective tax rate is 15% in South Korea and 20% in California, investors will still pour money into Silicon Valley won't they?
  - opo 10y ago
    >...But surely you accept that California has some inherant advantage? For now at least, it does seem to have an advantage and draws capital. (For example, Samsung has a huge R&D center in silicon valley.) Of course for every successful IPO in the valley, there are many others who don't make it near that far. The original poster was saying "...We just change the tax law to tax that money whether they bring it back to the US or not.". This would mean for example, that when selling in China, Apple would have to pay Chinese AND US/CA taxes on the profits made there and Samsung wouldn't - this would put US corporations at a huge disadvantage to their competitors. While I can see the goal is to get more tax money from corporations, it is obvious to see there would be a number of unintended consequences.
    - MarkMc 10y ago
      I'm still not sure the original poster is wrong. Yes, Apple's would be at a disadvantage due to higher tax rates but maybe that would be offset by the inherant advantages that California offers tech companies. If such advantages are strong enough to overcome a 5% difference in tax rates with South Korea, maybe they are strong enough to overcome a 40% difference. Investors will moan and complain but ultimately they will continue to find startups in California because it still offers the best return on investment.
      - opo 10y ago
        >...Yes, Apple's would be at a disadvantage due to higher tax rates but maybe that would be offset by the inherant advantages that California offers tech companies. What you are forgetting is that US law doesn't discriminate against foreign owned companies. (Which is good - it encourages investment in the US.) So if a corp with US headquarters would pay 30-40% taxes on profits made in non-US countries, this would make those companies very uncompetitive against a foreign company. >...they will continue to find startups in California because it still offers the best return on investment. If something like this was done, there may still be lots of money invested in CA, but eventually it would be mostly companies with a HQ outside of the US.
        MarkMc 10y ago
        The thing is, Apple hasn't really made those profits in a foreign country - there is very little profit to be made from manufacturing mobile phones in China which is why Apple outsources this task to Foxconn. There is also little profit to be made in selling phones - if Apple's retail arm was a separate company it would have no leverage to negotiate a good deal. The bulk of Apple's profit has come from design, marketing and engineering by employees, plus outstanding judgment and leadership by Steve Jobs. Those things were done in California. The problem is that Apple uses accounting tricks to transfer the profit to Nevada or Ireland or some other low-tax jurisdiction. It doesn't matter where the company's headquarters are located. If Samsung has profitable operations in California it should be taxed on that activity at the same rate as any other Californian business. That leads to another point - there are plenty of Californian businesses which cannot use the same accounting tricks that Apple uses. So you have a situation where two businesses that draw from the same pool of resources pay different tax rates. It could be that Business A uses those resources more efficiently but Business B gets funding because its tax rate is lower. That strikes me as inefficient. Running a business in California is like growing crops in a particularly fertile field. You get a great yield, but you should also pay high rent.

by MarkMc 10y ago

opo 10y ago

>...Imagine it is 2007 and you can choose to invest in Apple and receive 60% of profits, or Samsung and receive 100% of profits. What's the better investment? Imagine it is 2007 and you can choose to invest in Yahoo and receive 60% of profits, or Samsung and receive 100% of profits. What's the better investment?

MarkMc 10y ago
That's a good point. But surely you accept that California has some inherant advantage? If the effective tax rate is 15% in South Korea and 20% in California, investors will still pour money into Silicon Valley won't they?
- opo 10y ago
  >...But surely you accept that California has some inherant advantage? For now at least, it does seem to have an advantage and draws capital. (For example, Samsung has a huge R&D center in silicon valley.) Of course for every successful IPO in the valley, there are many others who don't make it near that far. The original poster was saying "...We just change the tax law to tax that money whether they bring it back to the US or not.". This would mean for example, that when selling in China, Apple would have to pay Chinese AND US/CA taxes on the profits made there and Samsung wouldn't - this would put US corporations at a huge disadvantage to their competitors. While I can see the goal is to get more tax money from corporations, it is obvious to see there would be a number of unintended consequences.
  - MarkMc 10y ago
    I'm still not sure the original poster is wrong. Yes, Apple's would be at a disadvantage due to higher tax rates but maybe that would be offset by the inherant advantages that California offers tech companies. If such advantages are strong enough to overcome a 5% difference in tax rates with South Korea, maybe they are strong enough to overcome a 40% difference. Investors will moan and complain but ultimately they will continue to find startups in California because it still offers the best return on investment.
    - opo 10y ago
      >...Yes, Apple's would be at a disadvantage due to higher tax rates but maybe that would be offset by the inherant advantages that California offers tech companies. What you are forgetting is that US law doesn't discriminate against foreign owned companies. (Which is good - it encourages investment in the US.) So if a corp with US headquarters would pay 30-40% taxes on profits made in non-US countries, this would make those companies very uncompetitive against a foreign company. >...they will continue to find startups in California because it still offers the best return on investment. If something like this was done, there may still be lots of money invested in CA, but eventually it would be mostly companies with a HQ outside of the US.
      - MarkMc 10y ago
        The thing is, Apple hasn't really made those profits in a foreign country - there is very little profit to be made from manufacturing mobile phones in China which is why Apple outsources this task to Foxconn. There is also little profit to be made in selling phones - if Apple's retail arm was a separate company it would have no leverage to negotiate a good deal. The bulk of Apple's profit has come from design, marketing and engineering by employees, plus outstanding judgment and leadership by Steve Jobs. Those things were done in California. The problem is that Apple uses accounting tricks to transfer the profit to Nevada or Ireland or some other low-tax jurisdiction. It doesn't matter where the company's headquarters are located. If Samsung has profitable operations in California it should be taxed on that activity at the same rate as any other Californian business. That leads to another point - there are plenty of Californian businesses which cannot use the same accounting tricks that Apple uses. So you have a situation where two businesses that draw from the same pool of resources pay different tax rates. It could be that Business A uses those resources more efficiently but Business B gets funding because its tax rate is lower. That strikes me as inefficient. Running a business in California is like growing crops in a particularly fertile field. You get a great yield, but you should also pay high rent.