Golden State tarnished by taxes
Economy | Angela Lu
Texas Gov. Rick Perry is in San Francisco this week, eyeing California companies and hoping to lure them to relocate in the Lone Star state. He plans to meet with leaders in the high tech, biotechnology, financial, insurance, and film industries during the next two days.
The trip comes after Perry released a radio ad last week touting the state’s low tax rate and business-friendly environment. “Building a business is tough,” he said in his slight drawl. “But I hear building a business in California is next to impossible.” In response, California Gov. Jerry Brown called the $24,000 ad “barely a fart.”
But present realities should have Brown a bit more concerned: California has the third highest unemployment rate, a debt of $27 million, soaring housing costs, and some of the strictest business regulations in the country.
Add to that November’s passage of Prop. 30, which increased sales tax by one-quarter percent and incomes taxes for those making over $250,000 by 3 percent. Top earners now pay 13.3 percent in income tax, compared to states like Texas, or nearby Nevada, where the income-tax rate is zero.
Golfer Phil Mickelson made headlines last month when he announced he would make “drastic changes” because of the tax increases. “If you add up all the federal and you look at the disability and the unemployment and the Social Security and the state, my tax rate’s 62, 63 percent,” Mickelson said. “So I’ve got to make some decisions on what I’m going to do.”
His comment caused a negative backlash and Mickelson apologized later for speaking so openly about his personal issues. But others in the golf world have already left California for greener pastures, including golfers Tiger Woods and Natalie Gulbis and equipment manufacturers Calloway Golf and Feel Golf.
Even before the tax increase, census data show Californians have a trend of moving away. In 2011, about 100,000 more people moved away from California than to the state. Almost 59,000 Californians relocated to Texas.
And with the residents, money also is leaving the state. A Manhattan Institute study found between 2000 and 2010, $5.67 billion in income shifted from California to Nevada, $4.95 billion went to Arizona, and $4.07 billion to Texas.
Chevron Corporation recently announced it would move up to 800 jobs, about a quarter of its headquarter staff, from the Bay Area to Houston.
“There’s no evidence that these business bashers in Sacramento are going to change their ways,” business relocation expert Joseph Vranich told a Sacramento NBC affiliate. “So California is probably the highest risk state in the country in which to locate a business.”
Some business leaders in the talent-rich Silicon Valley say they are not worried about the businesses leaving.
"The startup world is thriving here in the valley," said Kim Polese, chairwoman of financial services company ClearStreet Inc. and former chief executive of software company SpikeSource. She said startups are more concerned with issues like crowd funding and a ready workforce than taxes and regulations.
"I don't think it's impossible for other regions to create innovation centers, but the best talent in the world today gravitate to one place, here," Polese said. "And you need that talent to keep up with the speed at which technology is happening."
But if those start-ups succeed, the jobs often leave the state. In the past few years, Californians have watched Google build its new generation of server farms in Oregon, Intel open a $3 billion production facility in Phoenix, and eBay propose adding 1,000 jobs in Austin.
Beyond the Bay Area, Perry also will visit Los Angeles and Orange County through Wednesday.
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