Battle of the Governors: Low Taxes vs. High Tans
By Teresa Ambord
It all boils down to this . . .
If you're wondering how much difference we're really talking about between earnings taxed in Texas and earnings taxed in California, take a look at the following hypothetical example, provided by CPA Robert A. Raiola. Raiola heads the Sports & Entertainment Group for the New Jersey–based accounting firm of Fazio, Mannuzza, Roche, Tankel, LaPilusa, LLC.
- In California, his federal tax liability is $1,761,825, while his state tax liability is $628,142 for a total of $2,389,967.
- In Texas, the same executive would have a higher federal tax liability of $1,965,781 (due to the lack of a state tax deduction available to the California executive), and no state tax bill.
- In spite of the much higher federal tax bill, the Texas resident still saves $424,186 more than the California resident.
- California suffers a net loss of tens of thousands of taxpayers to Texas every year. Whether or not businesses will pull up stakes is uncertain, but they are responsible for new jobs in Texas. For example, Chevron, based in San Ramon, is moving 800 jobs to Houston. Facebook, eBay, and Visa, all based in the California Bay Area, have established expansion campuses in Texas.
- In a survey this month by the California Business Roundtable forum, 69 percent of companies admitted it's harder to do business in California than anywhere else, which may partially explain the state's very high 9.8 percent unemployment rate.
- Dan Morris, an accountant from San Jose, California, deals with wealth every day. He told reporters that since the passage of Proposition 30, there's a greater "catalyst burning under people" to leave. "There will be wealth that leaves California. Not everyone will move, but those who can, will."
- Chris Plastiras, owner of Lakeshore Realty in Lake Tahoe and Incline Village, said since the November election, he's seen many of his wealthy clients flock over the border into no-state-tax Nevada. "They're buying fast and furious, absolutely. I've never seen anything quite like this. Prop 30 really got a lot of people upset." More than 50 percent of his closings since the election have been people leaving California.
On the other hand, a Stanford University study showed California has the most millionaires per capita, while no-tax states have fewer than the average number of wealthy individuals. Brown and his supporters are counting on the fact that people love the Golden State, for the golden sun even if no longer for golden opportunities.
Voice of the Editor
Which isn’t completely true. I mean, occasionally I drop by when I manage to sneak out of the nonstop frat party over at Going Concern, but I’m mostly a wallflower over there. I’m happy to say that I’ve been given express permission (or explicit orders, if you like) to wander over here to AccountingWEB more often.
Why is that, you might ask? My job is to replace the irreplaceable Gail Perry as Editor-in-Chief. What does that mean? I don’t really know! I think it’ll be fun getting a feel for things, throwing in my own thoughts here and there, and listening to the discussions you’re having about the accounting profession.