In reality, there is only one way to stop the exodus from San Fran and California. Stop the fascist government from promoting hate, bigotry, greed and high taxes. End the destructive State imposed regulations while providing real education for our children and public safety for the community. Like we used to have.
““I think we will see even more of the relocations in 2021, especially among senior executives, investors and professionals who are more affected by high state taxes and can easily do their work remotely,” said Alison Davis, a prolific fintech investor and member of the board of Silicon Valley Bank’s parent, SVB Financial Group.
Texas and other states are courting Bay Area companies, mining the pricey innovation capital for firms that might be wooed by lower taxes — the Lone Star State doesn’t collect personal income or capital gains taxes from Texans — along with cheaper housing and looser business regulations.
Why invest in California when government regulations eat into your equity and taxes kill your income?
More companies are making the leap outside California. How can the Golden State bring back its golden touch?
California brown bear tries to stop the exodus of a business man.
By Mark Calvey and Allison Levitsky, San Francisco Business Times, 1/29/21
“We cannot solve our problems with the same thinking we used when we created them.”
Albert Einstein might as well have been talking about California’s corporate exodus when he said that quote, once spotted on the walls of Intel’s Santa Clara headquarters.
A dozen major companies, hundreds of small and midsized ones and thousands of individuals have moved out of the state and the Bay Area in recent years, but few in government seem to be paying attention, even as the movement is poised to intensify.
“I think we will see even more of the relocations in 2021, especially among senior executives, investors and professionals who are more affected by high state taxes and can easily do their work remotely,” said Alison Davis, a prolific fintech investor and member of the board of Silicon Valley Bank’s parent, SVB Financial Group.
Texas and other states are courting Bay Area companies, mining the pricey innovation capital for firms that might be wooed by lower taxes — the Lone Star State doesn’t collect personal income or capital gains taxes from Texans — along with cheaper housing and looser business regulations.
As business leaders fear this is just the beginning, we asked more than a dozen corporate and government leaders: What can state and local officials do to coax companies to stay?
1. Lower taxes on personal income and capital gains.
California’s comparatively high taxes — not to mention new levies state lawmakers in Sacramento have been considering — are blamed for spurring more middle-class and wealthy residents to move out of the Golden State, or consider doing so.
“The tax situation is unbearable,” said former Cisco Systems Inc. CEO John Chambers, voicing concern about California lawmakers considering a bill to raise the state’s top personal income tax rate from 13.3% — already the highest in the nation — to 16.8%.
The legislation didn’t pass in 2020 but is expected to be on the legislative agenda again this year. Unlike at the federal level, there is no favorable tax treatment on long-term capital gains in California, adding to the tax burden of state residents. That means Californians also pay a top tax rate of 13.3% on their long-term capital gains.
Last year, California lawmakers also briefly considered a so-called wealth tax that would impose a 0.4% tax on residents’ net worth above $30 million, excluding real estate. The proposed bill even included a feature that would tax wealthy people for 10 years after leaving the state, though the constitutionality of that measure, if passed, would have been left to the courts. The bill never came up for a vote in the last legislative session, but some fear a proposed wealth tax could emerge in the current session.
Some see little hope for reining in California’s enthusiasm for more taxes and spending.
“It will require a two-party system in which Democrats feel some pressure from their right,” said Joel Kotkin, the presidential fellow in urban futures at Southern California’s Chapman University and a noted author and speaker on urban geographies.
In California, Democrats don’t just have trifecta control of the governor’s office, the Assembly and the Senate; the party has a veto-proof supermajority in both chambers. Kotkin said California lawmakers don’t worry about a threat coming from conservatives or Republicans. Instead, they see their careers depending on the support of the left and not being challenged by someone further on their left.
“The problem is that we have a state that’s really run for the benefit of three groups: the public employees; the green lobbies and green nonprofits and their world view; and the tech oligarchs — and everyone else is irrelevant,” Kotkin said. “The public pensions are insane. The public schools in most of the state are not very good.
“There has to be a wake up to the political class that they’re becoming hopelessly dependent on a small number of taxpayers,” Kotkin said, pointing to the tax windfalls generated by California companies going public. In 2016, state figures show, the top 1% of California taxpayers generated nearly 46% of the state’s tax revenue on personal incomes, including from capital gains.
Then there’s the race to raise tax revenues at the local level, with voters facing almost three-dozen tax measures from Bay Area local governments on last November’s ballot. All but one financing Caltrain were opposed by the Bay Area Council, a business-supported public policy group.
“We’re at a tipping point,” said Jim Wunderman, CEO of the council. “We can’t sustain the budget of this state and provide the kind of services people demand because the money is going to things that are out of our control in these retirement costs that have been negotiated over a long period of time and now have to be undone. It’s not an easy thing to do.”
2. Don’t raise corporate income taxes.
California lawmakers at the state and local levels have long viewed the business community as a bottomless cash drawer. So it’s not surprising that the current legislative session already has one bill put forward to raise corporate taxes. In this case, the new funds are targeted to pay for additional services addressing homelessness.
The proposed law, AB-71, was amended Jan. 12 to include several major tax increases, including raising the income tax rate on corporations with more than $5 million in taxable income from 8.84% to 9.6% for corporations and from 10.84% to 11.6% for financial institutions, along with other changes in tax rules affecting corporate income.
The bill’s sponsors — Assembly members Luz Rivas, D-North Hollywood; Richard Bloom, D-Santa Monica; David Chiu, D-San Francisco and Buffy Wicks, D-Oakland — originally expected it to generate $2.4 billion annually by closing tax loopholes and raising corporate tax rates on corporations with $5 million or more in profits.
AB-71 is already drawing vocal opposition.
“Further clouding California’s already stormy business climate by imposing more taxes on thousands of businesses big and small is the last thing we should be doing in the middle of an economic crisis,” Wunderman said. “Ending homelessness is one of our top priorities, but all the spending in the world won’t make a difference if we don’t fix the deep structural problems that have long plagued our response, including building more housing.”
Aside from corporate tax rates, 80% of small businesses in California pay personal income tax on business profits that flow through the company onto the owners’ personal tax returns, said Dick Kovacevich, a former CEO of Wells Fargo who is sounding the alarm over the exodus.
The California Taxpayers Association is worried higher corporate income taxes will drive more companies out of the state, even if supporters of the tax proposal argue it won’t be a factor.
“That couldn’t be further from the truth,” said Robert Gutierrez, president of the California Taxpayers Association. While Oracle (and) Hewlett Packard Enterprise … made headlines with their decisions to leave, the untold story is how many other businesses also moved departments and functions out of this state because of California’s high cost of doing business, which AB-71 would only make worse.”
Local jurisdictions also levy taxes on corporations. Mountain View’s employee “head tax” went into effect a year ago after winning nearly 70% of the vote in 2018. The per-employee business tax was expected to raise $5 million per year — including $3.3 million or so from Google LLC parent company Alphabet Inc. — mostly to fund transportation needs. And San Francisco voters in November passed the so-called CEO tax, imposed on companies where the highest-paid executives are earning at least 100 times the median pay of their employees based in the city.
When Oracle announced its headquarters move to Austin in December, there was plenty of speculation about how much a company can save by leaving California.
“I doubt that anyone except Oracle’s tax department could give you a reasonable estimate,” said Joseph Vranich, a consultant with Spectrum Location Solutions in Pennsylvania. “My clients tell me they have saved between 15% and 30% on their tax bills by moving to Texas.”
3. Reduce regulations on business.
Jim Wallace, CEO of San Francisco accounting firm BPM, which employs about 650 people, laments the Legislature’s penchant for laws that affect small and midsized companies
“We’re the forgotten class. We make these laws directed toward the huge companies but they affect everybody,” he said.
One recent law that has rankled some in the business community is the California Consumer Privacy Act, which the Legislature passed in 2018 and voters strengthened last November. That law — the strictest of its kind in the United States — applies to California companies that either have more than $25 million in annual revenue; buy, sell or share the personal information of 50,000 or more consumers, households or devices; or derive at least half of their annual revenue from selling consumer information.
“You have the jewel that every state and every country in the world wants to have, and we’re losing it,” said Chambers, the former Cisco chief who is now a venture capitalist and supporter of early-stage startups. “The big companies can afford it — the small companies can’t.”
A report that an outside research firm prepared for the state Attorney General’s Office in 2019 estimated that companies with fewer than 20 employees would incur $50,000 in initial CCPA compliance costs and that companies with 20 to 100 employees would incur $100,000. The total cost of initial compliance was estimated at $55 billion.
John Chambers, former Cisco Systems Inc. CEO, says “Every piece of legislation that is passed should have an accompanying analysis on the job creation implications.”
Cisco
“Every piece of legislation that is passed should have an accompanying analysis on the job creation implications, especially for small companies,” Chambers said. “Sometimes the legislation was very appropriate for big companies — they’ve done something wrong, need to be held accountable — but the ones who bear the burden are the small companies who can’t afford financially to implement it.”
Assemblyman Evan Low, D-Campbell, said there are ways the state could cut red tape to make life easier for businesses, such as allowing remote signatories on articles of incorporation.
“There are many things that we can help expedite on the bureaucratic process on the permitting at the local and state level to help ensure that there is a sense of certainty in the regulatory framework,” he said.
Low chairs the Assembly’s Business and Professions Committee and launched the California Legislative Technology and Innovation Caucus in 2015. He said the exodus conversation is taking place in a “silo” apart from the threats facing working-class Californians, many of whom are facing layoffs and eviction during the pandemic.
“When you talk about policies, should we be sympathetic to … venture capitalists, or should we be sympathetic to the fourth-generation Californian who’s working two jobs and cannot put food on the table?” Low asked. “That is a big spread and disconnect, so how do we make sure that we see the exodus as a real thing and provide certainty, while also maintaining our moral clarity about the human compassion and the human interest that we have for everyday Californians?”
4. Build more homes for the middle class.
The cost of living — especially high housing costs — is a huge factor in driving people out of California, business leaders say. Regulations and restrictions add to the cost of housing, in addition to the lack of available land in areas where people want to live, coupled with not-in-my-backyard opposition to development.
Wallace said some of BPM’s East Bay employees are giving new meaning to a reverse commute. They start their morning commute to San Francisco by heading away from the city, going three stops east and grabbing a BART train heading into San Francisco, all to get a seat for the trip west across the Bay.
“It’s water cooler talk, but water cooler talk influences company policy,” Wallace said. BPM added about 5,500 square feet to its Walnut Creek office in 2019, bringing it to about 25,000 square feet, or about the size of its San Francisco headquarters office. The move helps accommodate East Bay employees who prefer to work closer to their homes. BPM also was early — in other words, before the pandemic hit — in allowing employees to work remotely, whether from Dallas, New York or elsewhere.
One business leader who left the Bay Area more than a decade ago said the region’s high costs have contributed to his company paring back in the region.
“The employees need to earn a certain amount in order to maintain their lifestyle in the Bay Area, especially when you’re a small company like ours and you’re competing with the Googles and Facebooks and Ciscos and the Oracles. It’s very difficult to hire good people,” said Howard Sewell, the president of Spear Marketing Group, which was founded in Walnut Creek in 2009.
Sewell left for Seattle 15 years ago after two decades in the Bay Area. His company, which has fewer than 50 employees, once had 80% of its employees based in the Bay Area. It has since dropped to 20%.
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