
Why Do Companies Want to Be Headquartered in a High Tax State Like California? - SQL2219
http://www.thelowdownblog.com/2016/10/the-golden-west-why-do-companies-want.html
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wahern
The real question is, why not? That is, challenge yourself to make the case
that a high tax state substantially effects the bottom line. And specifically,
_your_ bottom line, not some contrived thought experiment. The details often
matter more than anyone ever thinks.

IMO, people obsess too much about taxes. Between the states with the highest
and lowest tax burdens, you're taking about maybe a 5% difference in net
income. (I'm spit-balling.) From a theoretical standpoint 5% should make a
substantial difference, but in reality it's swamped by innumerable
confounders, especially in high growth or rapidly moving industries.

I can't say I enjoy the tax burden being a resident and home owner in San
Francisco, California. Certainly I like to fantasize, like any red-blooded
American, about moving to a rural area and homesteading on a secluded piece of
land. But my actions speak louder than my fantasies.

Also, it just might be the case that jurisdictions with higher taxes are
actually doing something positive with those taxes. (Or at the very least
their economies can sustain a higher burden, which is almost the same point.)
I mostly grew up in the rural South, but we were originally from Chicagoland.
Adults around me always complained about how high taxes were in the North, and
how corrupt and inefficient the unions were. And yet every time we visited
Chicago I was astounded at the public works projects, especially road
construction. They were doing in days or weeks what took months or years to
accomplish in Florida and Alabama. And there seemed to be a lot more middle-
class blue collar workers in Chicagoland. (A construction worker or truck
driver in Chicagoland could be a homeowner and saver; people like that in my
town lived in trailers.) I noticed this even as a child. It also wasn't lost
on me that the adults around me ended up in the South chasing dreams of easy
work and low taxes; instead we just ended up more destitute then ever and
basically stuck. (Which isn't to say you cannot become economically stranded
in the middle of a rich, urban economy.) One life lesson I took away from my
upbringing was that people obsesses over taxes and inefficient government out
of all proportion to the real relevance of those things wrt economic success.
It's a form of being penny wise and pound foolish.

Likewise, people focus too heavily on high-profile corporate tax dodges and
think it's what everybody should be doing. But those high-profile cases take
place in very specific contexts, often dealing with very specific tax
scenarios. The returns on investment in tax avoidance for the vast of majority
companies, big and small, would rarely compare.

Now, I know a few very rich individuals who moved out of California because of
the tax (or rather, lack of tax break) on gains from stock options. But I also
know more who stayed. I think that's an area where things might actually
matter. But I'm not at all convinced. Rather, it just highlights that the only
place it might matter is where you're talking about a 20% or greater
difference in take-home. In any event, for the vast majority of people it's
irrelevant, especially because not enough are leaving to make a substantial
difference, AFAICT, in the venture capital environment. Which, again, should
be telling. When reality doesn't track the theory or model, one's first
instinct should be to question the model, not ponder what's wrong with
reality.

