My husband recently found an interesting article entitled California Revenue Declines Since Passage of Prop 30.
Prop 30, it seems, was a tax-the-rich scheme that passed November 6, 2012 and which applies retroactively back to January 1, 2012. After it passed, business people wasted no time. Within a month, California State Controller John Chiang reported “that the total revenue for the month of November declined by $806.8 million, which is 10.8 percent below budget… The State of California experienced a decline in its revenue as several of the high income earners have relocated to other states, and have also relocated their businesses out of state. This led to a decline in corporate and income tax revenues by more than $1 billion.” [Emphasis added.]
A DECLINE of a billion bucks. And this article was written back in early December. Doubtless the businesses that left so quickly were either those that were small and light on their feet, or who were already in the process of relocating to another state. I’m guessing that in the next few months, California can expect to see an even larger exodus of businesses whose owners who aren’t interested in having every spare cent of their money confiscated against their wishes and redistributed elsewhere.
Even more comically, California bureaucrats are guilty of counting their chickens before they hatched. “With the expected increase in revenue to be derived from the passing of Prop 30, state bureaucrats increased deficit spending beyond the state’s $6 billion annual tax increase. The Department of Developmental Services and the Department of Health Services increased its spending in November by over $1 billion in comparison to its spending last year.” [Emphasis added.]
In other words, government goons – doubtless rubbing their hands together in lascivious glee – went on a spending spree without first finding out if they had any money in their checking account. And now California is more in debt than ever before. Surprised?
So what happened? Why didn’t the tax increase result in increased taxes? In an article entitled What Proposition 30 Means for California’s Entrepreneurs, Ethan Anderson wrote, “Nothing terrifies investors or entrepreneurs as much as the concept of expropriation. When governments decide to expropriate legally obtained assets, entrepreneurs who worked tirelessly to build businesses and investors who risked scarce capital end up with little to nothing for their troubles.”
For purposes of definition, expropriation is “when a public agency… takes property for a purpose deemed to be in the public interest, even though the owner of the property may not be willing to sell it.” In other words, it’s state-sponsored theft. Company profits are being stolen in the name of “public interest.” The California government – apparently steeped in greed, welfare, mismanagement, and other vices – decided to “stick it” to the rich (y’know, those folks who EMPLOY people) by stealing their money.
If I lived in California, why should I start (or continue) a business when I know all my profits will be seized by the state? What’s the incentive to continue running my company? Answer: there is none. I’d leave and take my business, my profits, and my employment opportunities someplace where they’re more appreciated.
We can’t necessarily blame the voters for passing Prop 30. “As is the case with many propositions,” notes Anderson, “the voters may have been fooled by the governor and his allies who aggressively pitched it as a way to ‘save education in our state.’”
The trouble is, this proposition disproportionately affects many people who patently aren't rich. Again I quote Ethan Anderson: “California’s entrepreneurs are hit particularly hard by Prop 30. Why? Because entrepreneurs often invest their life savings and go for years with a low or zero salary. Most start-up ventures end up failing in the end. But in those rare cases when something of great value is created and a meaningful liquidity event takes place (usually in the form of an acquisition or IPO), nearly all the money earned from the undertaking hits at one time. Instead of the income being spread evenly over the life of the company (the average time to exit for venture-backed start-ups is 7 or 8 years), a single once-in-a-lifetime event occurs such that eight years of income shows up in the single year, making entrepreneurs highly vulnerable to the top marginal tax rate.”
Many entrepreneurs and businesses, unwilling to hand over all the hard-earned assets they worked their butts off to earn – especially since Prop 30 is retroactive for almost a year – simply choose to leave California. They migrate to other states which welcome them (and their employment prospects and tax revenues) with open arms. States where they aren't punished for being a business.
Now I ask you, what on earth would compel ANY business to move to California? And what kind of reverse impetus is the California government using to encourage businesses to LEAVE the state? Talk about screwy. A state which desperately needs money is doing whatever it can to drive away investors, employers, entrepreneurs, and businesses.
My husband pointed out how Prop 30 exemplifies three misconceptions politicians invariably fail to remember: (1) No business is obliged to remain in a state where taxes and expenses discourage success and decrease profits; (2) Government always makes the assumption that when it increases taxes, it will increase its revenues (which has been shown time and time and time and time again to be incorrect); and (3) Either government legislators are dumber than a box of rocks, or the concept of “sticking it” to rich people is more pleasurable than fiscal reality.
To modify Margaret Thatcher’s famous line, “The problem with socialism is that you eventually run out of other people's money. ” – I might add: “Or until you chase people WITH money out of the state.”
We lived in California for decades. We fled in 1993 – first to Oregon, later to Idaho – and have never regretted that decision. We left because California was too crowded, too expensive, too full of crime, and too high in taxes. Looks like not much has changed. California has one-eighth of the country’s population but one-third of the country’s welfare recipients. Something’s gotta give, and when it does it ain’t gonna be pretty.
I have no solution to this mess. I just wish my family wasn’t still there when the powder keg blows.