8 ms·

IPOs Bring Tax Jackpot for California; Can Lawmakers Resist?

67 points by prostoalex 8y ago

aston 8y ago
Should lawmakers resist? There's no lack of housing and infrastructure projects worth spending on, state-wide.
- defen 8y ago
  $180 billion in unfunded CalPERS liabilities, too...
  - jdavis703 8y ago
    I reckon I'll need a couple million to retire in the next several decades. As I'm still pretty young I have a personal pension liability of a couple million dollars. My point here, what's the practical impact of this number? It's a scary number that's thrown out a lot, but is this number going to break the budget, or will pension spending as a fraction of the total budget be fairly stable?
    - defen 8y ago
      I don't think anyone really knows. A lot of it depends on the stock market - if it keeps going up, things will probably be fine. But if there's a big downturn it could wipe out a lot of money in the fund. At that point you could be looking at benefit cuts and/or tax increases.
    - HillaryBriss 8y ago
      In Los Angeles, the percentage of the city budget going toward funding of pensions is about 20%. Fifteen years ago, it was around 5%. Will it keep rising? What other spending is crowded out? etc...
    - twblalock 8y ago
      The CalPERS money is invested. In recessions, the pension fund shrinks and tax revenues shrink at the same time. The fraction of government spending needed to cover pensions increases as a result.
      - refurb 8y ago
        You forgot to mention that Calpers also assumed an 8% annualized return for their funding purposes. Slightly optimistic.
- dsfyu404ed 8y ago
  Will it matter? How much of it will actually be spent on stuff? How much of it will be spent in court fighting people over nothing in order to do things?
- BurningFrog 8y ago
  I'd say there is a huge lack of housing projects, since building housing is mostly illegal. Changing that would be very important, but it's a political will issue, not a money issue. SB50 would be a decent first reform.
- twblalock 8y ago
  Lawmakers should resist treating this unusual surge of IPO tax revenue as an ongoing thing. It is an unusual occurrence that is unlikely to be repeated every year, or even every decade.
swalling 8y ago
Taxing founders and employees even more (on top of CA's very high income tax and capital gains) seems like a ridiculous proposal when corporate net taxes are low or zero in many cases.
- cortesoft 8y ago
  Where do you see that proposal? The article never mentioned anything about taxing more.
  - tdhoot 8y ago
    Probably the proposed San Francisco 'IPO tax': https://www.nbcbayarea.com/news/local/SF-Supervisor-Proposes-IPO-Tax-on-Tech-Companies-509032951.html https://www.nbcbayarea.com/news/local/SF-Supervisor-Proposes...
olliej 8y ago
Why? If a business is not paying taxes then all infrastructure they are using is other tax payers subsidizing them.
- twblalock 8y ago
  That's not what the article is about. The article is about how the California government should handle the large amount of tax revenue it is already receiving, under current tax law, from the IPOs that are happening this year.
Zanni 8y ago
For those who didn't (or can't) read the article, the question being posed is--can they resist committing to additional recurring expenses in the face of a one-time windfall, not can they resist imposing a windfall profits tax on IPOs.
- malandrew 8y ago
  If they do do this, I really hope they make it recurring because every time they do stuff like this, they give more of a reason for their most productive citizens to flee the state, which causes them to lose tax revenue they were banking on, which causes them to increase taxes to cover the shortfall from fleeing taxpayers, eventually creating a virtuous cycle that bankrupts the state. There is no state in the country that deserves to lose its most productive citizens and go bankrupt as much as California.
  - mdorazio 8y ago
    Domestic emigrants from California are actually mostly the less wealthy/less income earning residents who can't afford to live there anymore [1], so it's basically the opposite of what you're saying. [1] https://lao.ca.gov/laoecontax/article/detail/265 https://lao.ca.gov/laoecontax/article/detail/265
  - knolax 8y ago
    >There is no state in the country that deserves to lose its most productive citizens and go bankrupt as much as California. I'm genuinely curious as to why there is so much rancor towards California in this forum? Could you explain why they deserve this?
    - djakjxnanjak 8y ago
      Punching up?
      - barry-cotter 8y ago
        Abuse is ok if you’re doing it to a disfavoured group that can plausibly be claimed to have greater social privilege on some access. For example if a black Yale graduate insults a white waitress that’s ok because as a white person she has privilege and he doesn’t. It’s a crass application of intersectionality theory, the only kind that exists in practice. It’s like the oppression olympics except it’s not a joke, the people talking about it are entirely serious. Abuse is ok if ...
whoisjuan 8y ago
They are rubbing their hands because they see these high taxes on individuals as the bonanza of their low corporate tax policy. The problem is that people hate paying taxes more than companies do. I have many friends that work in late stage startups who are planning to move to secondary offices in Seattle or Austin just to escape an eventual California taxation once they can convert their options because of an IPO or an acquisition. This by itself it's not a big problem, but California is so damn expensive that it starts looking pretty unattractive to future prospective entrepreneurs that can opt for other less expensive states to run their business.
- usaar333 8y ago
  Even if you move, California taxes subsequent NQSO exercises if the options vested while working on California.
  - throwaway818283 8y ago
    Semi-related question I've had about California taxes: are they actually enforced for non-residents? And if so, how? California non-resident taxes seem to be quite aggressive. Any income from "California sources" for non-residents is considered taxable, but "California sources" includes any income made while you're physically in California. So if you are a salaried employee and vacation in California and work in a coffee shop for a few hours, or if you go to a conference in California and don't take vacation days, you're technically supposed to file California taxes and pay for any income on those days, at least as I understand it. Yet I know many coworkers who have gone to conferences for a full week in California and not known about this at all, and definitely never filed or paid California state income tax. And they have never been informed of this, let alone gotten fined or served prison time or otherwise been punished in any way. The apparent impossibility of enforcement makes me think that any non-residents paying California taxes who aren't uber rich enough to attract the attention of journalists are just fools. Or am I just misunderstanding the policy?
    - mixmastamyk 8y ago
      Not sure your details are right, but thought I’d add an anecdote. One year I was abroad at tax time and dutifully filed. Couldn’t pay CA tax bill though due to a security restriction at their site. Will pay later I thought. Six months later they seized my bank account for a month, which was just a tad inconvenient.
epistasis 8y ago
California rewards property speculation and rent seeking with Prop 13; this is an untouchable source of inequality because landowning wealth is fiercely anti-tax. The more tax-friendly stance of tech wealth means that tech money funds much of the state, while those who hoard land reap many unearned profits from rent seeking and increased property values, which directly pushes our so many of those with lower incomes. Meanwhile the general attitude of the state is that tech is the source of the problems, rather than the conservatives who are unwilling to share their neighborhoods with new residents. It's quite an upside down view of the world.
- olliej 8y ago
  Prop 13 was heavily pushed by businesses under the guise of “saving your grand parents from excessive taxes”. What it actually is, is a tax cut for businesses (they don’t generally sell property, and so don’t ever pay tax on the actual property value), and land owners who rent/lease out property (because they can increase revenue in line with market value, while only paying taxes on increasingly far from market value properties). Given property taxes are generally used to fund a lot of public services (police, fire, schools, roads, etc) and a lot of those have costs determined by market value of property (eg cost of rent/mortgage is a significant determining factor for income), you end up necessarily pushing those costs on to individual tax payers. Businesses can easily incorporate out of state and so choose yet another cheap tax rate, pushing all of the costs into individuals. Prop 13 must be revoked.
  - JumpCrisscross 8y ago
    > Prop 13 must be revoked It might be easier, politically, to add carve-outs. Not your primary residence? Assessed value rises with CPI. Renting it out? Assessed value increases capped to e.g. 5% per year. Businesses with more than X in revenues or Y in employees? No price protection. Home value more than Z? No price protection. Et cetera.
    - deepakhj 8y ago
      Also we could defer taxes for elderly and charge the deferred taxes when they pass away. That way they don't lose their home.
brd529 8y ago
Related - Some SF Supervisors are going to put a retroactive 1.12% stock compensation payroll tax on the November ballot: https://www.sfchronicle.com/politics/article/Here-come-the-IPO-s-and-here-comes-a-proposal-13790280.php https://www.sfchronicle.com/politics/article/Here-come-the-I...
- umeshunni 8y ago
  Can I retroactively vote against those supervisors?
purplezooey 8y ago
An article about CA taxes always has to include someone from the Howard Jarvis Taxpayers Association. This is the wonderful group that brought us Prop 13 and would turn us into Alabama if they had their way. Howard Jarvis stands for everything bad in CA. Gentrification, HOAs, paranoid city councils, and why the schools are so hit-or-miss. I wish journalists would let them fade away like Mr. Jarvis's acting career.
gumby 8y ago
> The state budget relies heavily on the wealthiest earners; in 2017, the top 1% were responsible for more than 47% of the state's income tax collections. Until I saw it in action (2001, 2008) I hadn't realized that a tax regime could meaningfully be too progressive. But this statistic quoted in the article results in a tax receipts whipsaw in hard times. If you have a lot of money and your income declines dramatically for a couple of years you don't need to lose sleep over it -- it'll come back and meanwhile you can live of your assets. The same doesn't apply to entities that need to live off their tax receipts: such a time calls for increased spending just when the money isn't coming in.

67 points by prostoalex 8y ago

aston 8y ago

Should lawmakers resist? There's no lack of housing and infrastructure projects worth spending on, state-wide.

defen 8y ago
$180 billion in unfunded CalPERS liabilities, too...
- jdavis703 8y ago
  I reckon I'll need a couple million to retire in the next several decades. As I'm still pretty young I have a personal pension liability of a couple million dollars. My point here, what's the practical impact of this number? It's a scary number that's thrown out a lot, but is this number going to break the budget, or will pension spending as a fraction of the total budget be fairly stable?
  - defen 8y ago
    I don't think anyone really knows. A lot of it depends on the stock market - if it keeps going up, things will probably be fine. But if there's a big downturn it could wipe out a lot of money in the fund. At that point you could be looking at benefit cuts and/or tax increases.
  - HillaryBriss 8y ago
    In Los Angeles, the percentage of the city budget going toward funding of pensions is about 20%. Fifteen years ago, it was around 5%. Will it keep rising? What other spending is crowded out? etc...
  - twblalock 8y ago
    The CalPERS money is invested. In recessions, the pension fund shrinks and tax revenues shrink at the same time. The fraction of government spending needed to cover pensions increases as a result.
    - refurb 8y ago
      You forgot to mention that Calpers also assumed an 8% annualized return for their funding purposes. Slightly optimistic.
dsfyu404ed 8y ago
Will it matter? How much of it will actually be spent on stuff? How much of it will be spent in court fighting people over nothing in order to do things?
BurningFrog 8y ago
I'd say there is a huge lack of housing projects, since building housing is mostly illegal. Changing that would be very important, but it's a political will issue, not a money issue. SB50 would be a decent first reform.
twblalock 8y ago
Lawmakers should resist treating this unusual surge of IPO tax revenue as an ongoing thing. It is an unusual occurrence that is unlikely to be repeated every year, or even every decade.

swalling 8y ago

Taxing founders and employees even more (on top of CA's very high income tax and capital gains) seems like a ridiculous proposal when corporate net taxes are low or zero in many cases.

cortesoft 8y ago
Where do you see that proposal? The article never mentioned anything about taxing more.
- tdhoot 8y ago
  Probably the proposed San Francisco 'IPO tax': https://www.nbcbayarea.com/news/local/SF-Supervisor-Proposes-IPO-Tax-on-Tech-Companies-509032951.html https://www.nbcbayarea.com/news/local/SF-Supervisor-Proposes...

olliej 8y ago

Why? If a business is not paying taxes then all infrastructure they are using is other tax payers subsidizing them.

twblalock 8y ago
That's not what the article is about. The article is about how the California government should handle the large amount of tax revenue it is already receiving, under current tax law, from the IPOs that are happening this year.

Zanni 8y ago

For those who didn't (or can't) read the article, the question being posed is--can they resist committing to additional recurring expenses in the face of a one-time windfall, not can they resist imposing a windfall profits tax on IPOs.

malandrew 8y ago
If they do do this, I really hope they make it recurring because every time they do stuff like this, they give more of a reason for their most productive citizens to flee the state, which causes them to lose tax revenue they were banking on, which causes them to increase taxes to cover the shortfall from fleeing taxpayers, eventually creating a virtuous cycle that bankrupts the state. There is no state in the country that deserves to lose its most productive citizens and go bankrupt as much as California.
- mdorazio 8y ago
  Domestic emigrants from California are actually mostly the less wealthy/less income earning residents who can't afford to live there anymore [1], so it's basically the opposite of what you're saying. [1] https://lao.ca.gov/laoecontax/article/detail/265 https://lao.ca.gov/laoecontax/article/detail/265
- knolax 8y ago
  >There is no state in the country that deserves to lose its most productive citizens and go bankrupt as much as California. I'm genuinely curious as to why there is so much rancor towards California in this forum? Could you explain why they deserve this?
  - djakjxnanjak 8y ago
    Punching up?
    - barry-cotter 8y ago
      Abuse is ok if you’re doing it to a disfavoured group that can plausibly be claimed to have greater social privilege on some access. For example if a black Yale graduate insults a white waitress that’s ok because as a white person she has privilege and he doesn’t. It’s a crass application of intersectionality theory, the only kind that exists in practice. It’s like the oppression olympics except it’s not a joke, the people talking about it are entirely serious. Abuse is ok if ...

whoisjuan 8y ago

They are rubbing their hands because they see these high taxes on individuals as the bonanza of their low corporate tax policy. The problem is that people hate paying taxes more than companies do. I have many friends that work in late stage startups who are planning to move to secondary offices in Seattle or Austin just to escape an eventual California taxation once they can convert their options because of an IPO or an acquisition. This by itself it's not a big problem, but California is so damn expensive that it starts looking pretty unattractive to future prospective entrepreneurs that can opt for other less expensive states to run their business.

usaar333 8y ago
Even if you move, California taxes subsequent NQSO exercises if the options vested while working on California.
- throwaway818283 8y ago
  Semi-related question I've had about California taxes: are they actually enforced for non-residents? And if so, how? California non-resident taxes seem to be quite aggressive. Any income from "California sources" for non-residents is considered taxable, but "California sources" includes any income made while you're physically in California. So if you are a salaried employee and vacation in California and work in a coffee shop for a few hours, or if you go to a conference in California and don't take vacation days, you're technically supposed to file California taxes and pay for any income on those days, at least as I understand it. Yet I know many coworkers who have gone to conferences for a full week in California and not known about this at all, and definitely never filed or paid California state income tax. And they have never been informed of this, let alone gotten fined or served prison time or otherwise been punished in any way. The apparent impossibility of enforcement makes me think that any non-residents paying California taxes who aren't uber rich enough to attract the attention of journalists are just fools. Or am I just misunderstanding the policy?
  - mixmastamyk 8y ago
    Not sure your details are right, but thought I’d add an anecdote. One year I was abroad at tax time and dutifully filed. Couldn’t pay CA tax bill though due to a security restriction at their site. Will pay later I thought. Six months later they seized my bank account for a month, which was just a tad inconvenient.

epistasis 8y ago

California rewards property speculation and rent seeking with Prop 13; this is an untouchable source of inequality because landowning wealth is fiercely anti-tax. The more tax-friendly stance of tech wealth means that tech money funds much of the state, while those who hoard land reap many unearned profits from rent seeking and increased property values, which directly pushes our so many of those with lower incomes. Meanwhile the general attitude of the state is that tech is the source of the problems, rather than the conservatives who are unwilling to share their neighborhoods with new residents. It's quite an upside down view of the world.

olliej 8y ago
Prop 13 was heavily pushed by businesses under the guise of “saving your grand parents from excessive taxes”. What it actually is, is a tax cut for businesses (they don’t generally sell property, and so don’t ever pay tax on the actual property value), and land owners who rent/lease out property (because they can increase revenue in line with market value, while only paying taxes on increasingly far from market value properties). Given property taxes are generally used to fund a lot of public services (police, fire, schools, roads, etc) and a lot of those have costs determined by market value of property (eg cost of rent/mortgage is a significant determining factor for income), you end up necessarily pushing those costs on to individual tax payers. Businesses can easily incorporate out of state and so choose yet another cheap tax rate, pushing all of the costs into individuals. Prop 13 must be revoked.
- JumpCrisscross 8y ago
  > Prop 13 must be revoked It might be easier, politically, to add carve-outs. Not your primary residence? Assessed value rises with CPI. Renting it out? Assessed value increases capped to e.g. 5% per year. Businesses with more than X in revenues or Y in employees? No price protection. Home value more than Z? No price protection. Et cetera.
  - deepakhj 8y ago
    Also we could defer taxes for elderly and charge the deferred taxes when they pass away. That way they don't lose their home.

brd529 8y ago

Related - Some SF Supervisors are going to put a retroactive 1.12% stock compensation payroll tax on the November ballot: https://www.sfchronicle.com/politics/article/Here-come-the-IPO-s-and-here-comes-a-proposal-13790280.php https://www.sfchronicle.com/politics/article/Here-come-the-I...

umeshunni 8y ago
Can I retroactively vote against those supervisors?

purplezooey 8y ago

An article about CA taxes always has to include someone from the Howard Jarvis Taxpayers Association. This is the wonderful group that brought us Prop 13 and would turn us into Alabama if they had their way. Howard Jarvis stands for everything bad in CA. Gentrification, HOAs, paranoid city councils, and why the schools are so hit-or-miss. I wish journalists would let them fade away like Mr. Jarvis's acting career.

gumby 8y ago

> The state budget relies heavily on the wealthiest earners; in 2017, the top 1% were responsible for more than 47% of the state's income tax collections. Until I saw it in action (2001, 2008) I hadn't realized that a tax regime could meaningfully be too progressive. But this statistic quoted in the article results in a tax receipts whipsaw in hard times. If you have a lot of money and your income declines dramatically for a couple of years you don't need to lose sleep over it -- it'll come back and meanwhile you can live of your assets. The same doesn't apply to entities that need to live off their tax receipts: such a time calls for increased spending just when the money isn't coming in.