Millions flee California because of progressive tax system
California has lost billions of dollars in revenue in recent years as businesses and residents flee the state, in part because other states have a more favorable business climate.
According to one estimate, 254 businesses across a variety of industries moved all or some of their jobs out of state last year.
California has both the highest state deficit in the country and the highest personal income tax.
Silicon Valley, a unique business center thought to be particularly resilient to economic downturn, has also responded to the poor business conditions. In 2005, for example, Intel decided to build a multi-billion dollar chip-making facility in Arizona because of the state’s favorable corporate income tax system.
Utah and Texas have stolen skilled technology workers from California-based companies like Oracle, Adobe and Apple.
Small business owners are also increasingly trying to move to other states to avoid high taxes and cut costs.
“Part of [moving operations to Texas] was the cost of doing business in California,” Ronald Mittelstaedt, CEO of Waste Connections, told CBS News. “Highest tax rates in the nation. Until recently very expensive real estate. Tremendous regulation and really a broken legislature.”
The California Manufacturing and Technology Association found in a recent study that 82 percent of companies surveyed did not consider California when expanding or opening a new facility.
The study also noted that companies looking to expand their operations favored states with proximity to their customers, generous tax incentives, low cost labor, proximity to suppliers and a comprehensible and a favorable tax system.
California ranked last or bottom tier in all of those categories.
And California’s 9.3 percent income tax on middle class workers — those who earn more than $48,000 — is higher than what millionaires pay in 47 states.
Joel Kotkin, a demographer and Californian who has fled the state, said California used to be a haven for businesses.
“The state is [now] run for the very rich, the very poor, and the public employees,” Kotkin told The Wall Street Journal.
The Tax Foundation noted in a report that states like California and New York struggle with attracting businesses primarily because of their tax systems.
“The evidence shows that states with the best tax systems will be the most competitive in attracting new businesses and most effective at generating economic and employment growth,” according to the report.
Texas’ state and local tax burden is currently estimated to be 7.9 percent of income, one of the lowest in the nation, according to the Tax Foundation. Texas also boasts cheap labor and no state income tax.
California’s Democratic Gov. Jerry Brown has already released a plan to close the state’s $16 billion dollar budget gap by increasing taxes.
“I’m linking these serious budget reductions … with a plea to the voters: Please increase taxes temporarily,” Brown said during a press conference in May.
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