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California Businesses Leave The State By The Thousands

By Lee OhanianHoover Institution

California businesses are leaving the state in droves. In just 2018 and 2019—economic boom years—765 commercial facilities left California. This exodus doesn’t count Charles Schwab’s announcement to leave San Francisco next year. Nor does it include the 13,000 estimated businesses to have left between 2009 and 2016.

 The reason? Economics, plain and simple. California is too expensive, and its taxes and regulations are too high. The Tax Foundation ranks California 48th in terms of business climate. California is also ranked 48th in terms of regulatory burdens. And California’s cost of living is 50 percent higher than the national average.

These statistics show why California’s business and living climate have become so challenging. But the frustrations that California entrepreneurs face every day present a different way of understanding their relocation decisions.

Erica Douglas, a young tech entrepreneur, moved her company, Whoosh Traffic, from San Diego to Austin, Texas, a few years ago. Here is what she had to say:

“Dear California,

“I’m leaving you. I’ve struggled with a government that is notoriously business-unfriendly—with everything from high taxes on earning to badgering businesses to work more to comply with bureaucracy. I paid enough in California income tax in one year alone to hire another worker for my business. And you charge me $800 annually as a corporation fee, when most states charge just a few dollars.”

Not surprisingly, California businesses tend to relocate from the counties with the highest taxes, highest regulatory burdens, and most expensive real estate, such as San Francisco, and they tend to relocate to states where it is easier to prosper. Texas imposes just a 0.75% franchise tax on business margins, compared to California’s 8.85% corporate tax. As if this large difference weren’t enough of an incentive to leave, the city of San Francisco imposes a 0.38% payroll tax, and a 0.6%  gross-receipts tax on financial service companies. Yes, if your business is in San Francisco, not only are your profits taxed by the state, but your payroll and your output are taxed as well. Not to mention that Texas has no individual income tax, compared to California’s current top rate of 13.3%, which may rise to 16.3% soon, and which would apply retroactively.

Speaking of California entrepreneurs leaving the state, there is Paul Petrovich. If you live near Sacramento, chances are your life has been made easier by Paul. He is a major commercial real estate developer whose projects include facilities involving Costco, Target, Walmart, McDonalds, Wells Fargo, and Verizon, among other major firms. But Petrovich has announced he will soon be leaving. For . . . drumroll please . . . Texas.

You see, California is discussing a wealth tax that may hit Petrovich. Known as AB 2088, lawmakers are so proud of this 0.4% tax on wealth that they proudly market it as “establishing a first-in-nation net-worth tax” that “will generate $7.5 billion in revenue.” Complicated as all get-out, it involves not just financial assets but real estate, farmland, offshore holdings, pensions, art, antiques, and other collectibles. Europe tried taxing wealth, and it has failed, leading almost all countries to abandon it. And the idea that it will generate $7.5 billion in revenue is laughable, though it will create additional income for tax attorneys and CPAs. The state also intends to make this law follow you for up to a decade should you leave. Clever politicians? Maybe, but just how will they convince other states to cooperate once you relocate? Not to mention whether this future provision is constitutional.

I am surprised that Petrovich stayed in California so long. As a developer specializing in developing infill projects, meaning developing unutilized or underutilized land, he has been involved in many lawsuits challenging his right to develop.

One has involved a mixed-use development project that includes a Safeway supermarket, senior living, shopping, and a gas station on a site of a former railway station, polluted and abandoned. What is not to like? For the city council, it is the gas station.

Petrovich has been involved in a legal battle over this project since 2003. All over a gas station. Twenty lawsuits and over $2 million in legal fees later, Petrovich appears to be winning, and winning against a city council that broke the law.

A state appeals court recently ruled that the Sacramento City Council denied Petrovich a fair hearing several years ago by acting in a biased manner. Sacramento Superior Court judge Michael Kenny wrote that one councilman demonstrated “an unacceptable probability of actual bias” and failed to have an open mind. The court found that the councilman was trying to round up votes against the gas station before it came before a hearing. Rather than accepting this ruling, the city council will appeal. They appear to be doubling down not only on bad behavior but on wasting resources as well .

Readers often ask me how California politicians have changed over time. An important and often overlooked factor is that politicians now have personal agendas that they aim to impose on other Californians, often without transparency or accountability. This is what is going on now with Petrovich, and is what is going on with AB 5, the new law that prevents many Californians from working as independent contractors that began on January 1.  Voters must begin to hold politicians accountable for this if California is ever able to reform.

Mr. Petrovich, if you leave, I will be sorry to see you go. Your developments made life much easier and more prosperous for thousands. Thanks for your service.  Your potential departure will be a loss for all of us.


Intellectual Property: Stealing is wrong, even if you’re Google

By George LandrithRed State

While the rest of the country enjoyed their Thanksgiving dinners and began their Christmas shopping, the big brass at Google had a lot to think and worry about over the long weekend.  

You may recall that earlier this year, Google was the recipient of a bipartisan grilling in Congress over its predatory business practices. The big tech goliath was unable to offer up even a semblance of a convincing defense, leading some to speculate that an antitrust bust-up was awaiting on the horizon.  

Over the past few months, those rumblings have turned into reality.   

First, in October, the Department of Justice announced a formal antitrust lawsuit, putting the full weight of the federal government on Google’s neck. Then, last week — just two days before Thanksgiving — a bipartisan coalition of state attorneys general announced plans for a second lawsuit, which may come this month (a third antitrust suit spearheaded by Texas is also in the works). It is very likely that by next summer, every state and federal division of the judicial branch will be pursuing the breakup of the search engine giant.  

But it may be the Supreme Court, traditionally the final stop on legal journeys, that strikes the first blow.   

Observers may recall that back in October, the Supreme Court heard oral arguments in a copyright infringement case regarding the shady origins of Google’s Android software. The lawsuit’s gist is that Oracle claims Google sticky-fingered Java source code developed by its subsidiary, Sun Microsystems, to build up Android OS — a multi-billion-dollar revenue generator that runs on millions of smartphones. 

Consider some of the most damning details.   

According to the lawsuit, Google stole what it refused to buy after Sun offered Google a three-year license to use its code. The deal would have cost Google $100 million. Google decided that, as Woody Woodpecker used to say, free was a much better price. 

This is an interesting argument. If Google initially sought permission to use Sun’s code, it implies that Google knew perfectly well the code wasn’t just theirs to take. One doesn’t ask permission to use the public sidewalk. One does ask permission to borrow the neighbor’s car — and if the borrower takes it for a drive without permission, everyone understands what that is. 

The Supreme Court appears to understand this point very well, which doesn’t look good for Google.  
 
As Justice Brett Kavanaugh put it: “You’re not allowed to copy a song just because it’s the only way to express that (particular) song.” In other words, the fact that Stairway to Heaven by Led Zeppelin is the only song that sounds like Stairway to Heaven doesn’t mean that people who didn’t write it have a right to record it and sell it just because they like the way it sounds. 

If they did so, everyone would understand a theft had occurred, and the thief would be held accountable. 

Justice Neil Gorsuch made the point that the existence of one avenue, however popular it may be, doesn’t prevent creators from finding new ones. The fact the Led Zeppelin wrote Stairway to Heaven and made a lot of money selling albums in no way prevented Stone Temple Pilots from writing Plush and selling lots of albums of their own.

Gorsuch’s reasoning explains why other mobile operators managed to create their products without using Java at all. Java wasn’t the only way into town, so to speak, as Google claims; the tech giant just refused to find a new path.  

While we likely won’t know the official decision until the summer, Google is likely sweating bullets.  

It’s one of the wealthiest companies in history, but it’s facing an unprecedented level of legal pressure due to two decades of bad behavior. From the outside looking in, it appears the courts are circling the wagons.   

Consumers need not worry. None of the services Google provides are irreplaceable innovations or at threat of disappearing in the case of a breakup. It’s even possible that, with the market’s largest digital predator subdued, a breakup would lead to a flurry of new digital services. 

The only people who have to worry are Google shareholders and employees. They’re looking at legal cases and potentially billions in losses. Those prospects would dampen anyone’s holiday season. 


Why Businesses Should Stay Out of Politics

By Megan McArdle • The Washington Post

Remember when companies tried to stay out of politics? I’d imagine Delta Air Lines is recalling those days very fondly. The airline bowed to pressure from liberal activists to stop offering a group discount to the National Rifle Association’s annual convention. Now it’s facing a backlash from Georgia Republicans. Given that Delta’s headquarters and biggest hub are in Atlanta, that’s a big problem.

Delta is wanly protesting that it wasn’t trying to make a political statement but to keep out of politics altogether. But it ended the discount in response to a political pressure campaign. And the company made a point of announcing its decision on Twitter, rather than quietly informing the NRA. If anyone at Delta thought that this wouldn’t be taken as a swipe at the NRA, that person really needs to make some time to meet a few human beings while visiting our planet.

Indeed, that was the point. NRA finances aren’t going to be devastated because members no longer get a small discount to attend its convention. Nor will NRA members stop Continue reading


One in Five Small Businesses Spend at Least $10,000 on Tax Administration Annually

By Ali Meyer • Washington Free Beacon

One in five small businesses, or 22 percent, pay at least $10,000 on the administration of federal taxes each year, according to the National Small Business Association’s 2017 taxation survey. This does not include the money that a business owes the IRS in taxes.

Five percent of small businesses pay more than $40,000 a year on the administration of federal taxes, seven percent pay between $20,001 and $40,000, and ten percent pay between $10,001 to $20,000. The majority of businesses, 67 percent, pay more than $1,000.

Small businesses and their staff also spend significant amounts of time dealing with taxes, whether it be by filing reports, working with accountants, or calculating payroll. Twenty percent of businesses spend more than 120 hours annually. Continue reading


CEOs Urge Congress to Enact Tax Reform to Help Make U.S. Companies Competitive

by Ali Meyer • Washington Free Beacon

Sixteen CEOs from large companies are urging Congress to enact comprehensive tax reform that would end a tax on domestic production and make companies in the United States more competitive globally.

CEOs from companies such as Dow Chemical, Pfizer, Caterpillar, Boeing, and General Electric have written a letter to Speaker of the House Paul Ryan (R., Wis.) and Sen. Chuck Schumer (D., N.Y.) urging them to make the U.S. tax code more pro-growth and lower rates for businesses so they can actively compete with global competitors.

“We recommend enacting comprehensive pro-growth tax reform to remove a major impediment to economic growth—our outdated tax code,” the CEOs said. “We have the highest business tax rate in the developed world and are one of the few countries that taxes business income on a worldwide basis.” Continue reading


Ronald Reagan on the Importance of Entrepreneurs

“New incentives to save, invest, and take risks, so more wealth will be created at every level of our society.”

by Scott L. Vanatter

President Ronald Reagan dedicated his May 14, 1983 radio address from Camp David “the importance of entrepreneurs and how we’re trying to help them.”

He began by citing George Gilder’s book, Wealth and Poverty, where he developed the important idea that  “… most successful entrepreneurs contribute far more to society than they ever recover. And most of them win no riches at all. They are the heroes of economic life. And those who begrudge them their rewards demonstrate a failure to understand their role and their promise.” Reagan went further, “Too often, entrepreneurs are forgotten heroes. We rarely hear about them. But look into the heart of America, and you’ll see them. They’re the owners of that store down the street, the faithfuls who support our churches, schools, and communities, the brave people everywhere who produce our goods, feed a hungry world, and keep our homes and families warm while they invest in the future to build a better America.” Continue reading


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