California Bill Threatens Tech Company Culture

Brendan Flanagan Democratic consultant and a veteran of Obama for America
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I don’t want to get too technical here, because I want people to understand what is at stake. The so-called “carried interest loophole” is being debated again, and it can be hard to get people who would be affected to take an interest. So let’s start with what is worrying: Imagine California with many of the current venture capital firms and hedge funds simply gone, driven out of state by our legislature.

These companies are the drivers of Silicon Valley, and much of the rest of the state’s tech economy. Without enough venture capital, many start-ups won’t start up. There’s a real danger that the cutting edge of the industry will be driven elsewhere, to other states or overseas. 

If so, all that we’ll have left is the pat on the back that we can give ourselves for finally having done something about supposedly obscene compensation for fund managers. (The whole controversy has to do with their compensation being taxed at capital gains rates rather than as income. But one of the justifiable reasons for that is that their compensation is not guaranteed, like a salary. Generally speaking, if the fund makes money, they make money; and if not, then not.) 

Meanwhile, those same managers will in all likelihood move elsewhere, continue to make a lot of money, and fund start-ups in other states. These start-ups will, over time, become the large tech companies of tomorrow – companies that are not based in California and pay no taxes here.

To avoid any misunderstanding, I do not come to this issue as someone who hates taxes or loathes our legislature. I am a lifelong Democrat and welcome much of the legislation that comes out of Sacramento. I have campaigned and worked hard to try to make America a fairer place for all people. 

Where I depart from those who support a piece of legislation called AB-2731 is that I recognize the proverbial golden goose when I see it in the straw. The state’s venture capital businesses keep laying solid gold eggs for the legislature to spend, and that’s a good thing. But you can only get so much out of it, so fast. This legislation would amount to swinging the axe to try to get more eggs, and the result will be about the same. It will be a loss, not a gain, for the taxpayers. 

So let’s dodge this avoidable tragedy. Sane, responsible  members of both parties, such as Speaker Anthony Rendon, State Assembly Republican Leader Brian Dahle, State Senate President Toni Atkins, and Chair and Vice Chairs for the Committee on Revenue and Taxation Autumn Burke and William Brough, ought to come together and set aside both the legislation and the rhetoric that gave rise to it.

Barring that, Governor Jerry Brown has been known from time to time to put the long-term interest of all of the state over the specific, short-term concerns of his party. In this case, let’s hope he has that veto pen ready. 

Brendan Flanagan is a Democratic consultant and a veteran of Obama for America.

The views and opinions expressed in this commentary are those of the author and do not reflect the official position of The Daily Caller.

Brendan Flanagan