1. move
2. invest
3. Start a family
4.work hard
5. start a business
And may I point out that while the democrats here in Minnesota rail against our Governor, Tim Pawlenty, for being a cold hearted evil republican for not increasing taxes, Minnesota is now finally off of this list?
Enjoy the decline!
Apparently, entrepreneurs in Silicon Valley and NYC - and the VCs who fund them - are complete idiots. Or, taxes may not be their biggest concern.
ReplyDeletePerhaps you could help me understand how having high marginal tax rates on personal incomes above $1 million is punitive for startups?
How many company founders are in a position to pay themselves $1,000,001 or more (after deductions) to put themselves into what you seem to consider to be a punitive position?
The list he provided doesn't really explain the whole story. California is 10.55% for over a million, but it is 9.55% for over $47,000 and 8.25% for over $37,000. If you understand the cost of living in the state of California, where housing prices are still in a bubble, huge government deficits (which will mean higher taxes in the future due to the political climate), where sales taxes aren't low (8.25% minimum), gas taxes aren't low, a limited choice of medical plans to choose from (ex. no HSA), and extreme regulation of everything which drives up prices, then that list is distorted. If you are a full time middle class worker bee in California, even you are screwed. I feel bad for anyone who started a business 20-30 years ago, and want to continue in this economic climate. If you are white legal resident, you have to follow all the expensive rules and regulations. If you are something other than that, you do not have to pay unemployment, taxes, or follow regulations (like having a restroom in a restaurant). Welcome to crazy world.
ReplyDeleteYeah, but Ed, has anything come out of Silicon Valley recently? Let alone, how would you explain the overall state of California's dire financial condition?
ReplyDeleteI would say that the Silicon Valley and NYC VC's that fund these projects are morons. Did you not see the Dotcom Bubble burst?
I'm being completely serious when I say this (because I do respect you and inevitably you will join the "dark side of the force" because you have intellectual honesty) but after the rare "successful start up" breaches $1M in income, where do you think they'd going to go to base their operations?
And let's not forget, start up are a huge risk.
ReplyDeleteA lot of starts up simply donlt happen at all if people do the calculus in their head and think, "nah, the known pain the derriere, isn't worth the potential payoff, I'll continue working in this here cubicle rather than bust my hump at the chance of being a millionaire."
That's the real cost of regulation and govermental crap.
Also Silicon valley was successful because all critical mass of people, businesses, investors who got it, etc... were all concentrated there with a big-ass carrot of potentially get richer than Croesus. ( and Nor CAl _IS_ and lovely place)
But enough f-ups byt ehe government and, bye bye, the critical mass evaporates and new blood DOESN't move in ( who can afford being an entry level guy there?) Suddenly you are Boston, proud former owner of the tech revolution.
The blue states never seem to stop at putting tax increases on the so-called "rich."
ReplyDeleteA state can't generate enough revenue by taxing the hell out of the rich. And many of the "rich" are free to move to less heavily taxing states.
Ultimately, those tax increases on the rich end up being extended to the middle class, who may not have the ability to escape to a less heavily taxing state.
I may not be a rich man, but I do happen to know that California's 10.55% is a lot higher than Minnesota's 7.35%.
And Minnesota has quite a few startups, many of them medical related. Some of the more mature ones are Medtronic, Boston Scientific, St. Jude Medical.
And we have to contend with ads from South Dakota encouraging businesses to move or expand there - with their 0% income tax.
As Anonymous (one of them) mentions, Silicon Valley has a concentration of smart people. It sure seems like the people who are there could work anywhere in the world, since they're creating companies where all they really need is an Internet connection, yet they still choose to live in an expensive state. People move from all over the country and world there in spite of the tax rates, which makes me think that they don't find them punitive enough to matter.
ReplyDeleteCaptain, Facebook is bringing in around $1 billion this year. Google brings in around 17X that. Salesforce.com is there. And Yahoo is hanging on (it isn't taxes that's killing Yahoo).
What is Ted Turner offered to fund Facebook big time before they received the funding they have now, but told them that they had to choose a low-tax state like Wyoming, South Dakota, or Alabama for their headquarters? Would Zuckerberg have taken the money?
While there certainly are stupid VCs, I don't think many are stupid enough to put taxes near the top of factors influencing a startup's chances of success.
You're right, Ed. There are a lot of smart people in Silicon Valley, but they're not economists and the majority of their smarts are in IT.
ReplyDeleteGoogle for example may be based there, but did you see how they based their European subsidiary in Ireland instead of Britain?
That's fine companies start up there,but it's a question of whether they stay there once they become successful and for the long term.
Now, as you pointed out there are certainly more things than taxes. Regulation, labor force, transportation, corruption. For example, nobody is rushing to invest in Venezuela. And because of these non-tax things maybe people are attracted to California (it's weather I believe is probably the biggest factor).
But in the end, for all the people that live in California and all the companies that invest there, is the state succeeding, or failing?
That is the larger macro-economic issue and basically answers the debate. They're issuing IOU's. The state has failed, it's private secotr has not generated enough in terms of production to keep it viable.
So yes, some 20 something's fresh out of the brainwashing UC Berkeley gave them along with their computer programming masters, might go and start up their company in silicon valley. They'll either fail, or if successful, move out. Maybe not the HQ, but they will certainly (like Google, like Apple) move their capital out of California's tax hands.
Captain, the rationale for opening an office in Ireland rather than the UK may indeed be a case of taxes leading their decision making. But, that's also because it's not an office that depends on hiring the best and brightest employees in the company.
ReplyDeleteIf I was going to open a call center, I'd be hyper-focused on costs because the labor is much more of a commodity in jobs a person can be trained for in a day. Google has one in Ann Arbor for AdWords where above average call center employees are needed. That's not work that needs Silicon Valley talent to handle. Silicon Valley is where they figure out how to improve their product so they can close the call center. Low tax state America has a ton of call centers stocked with people who'll show up on time and be pleasant on the phone throughout the day for $8-$12/hr.
The bubble economy certainly allowed California to over promise, and has put them in a sticky wicket now that the easy money flowing in from the bubble has stopped. Yet that's had little impact on where startups are choosing to start up.
@Anonymous at 7:24pm, unless you make more than $1 million/year after deductions, I strongly suggest that you calculate what the differences in tax rates would mean to you.