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On top of this you have to add California state taxes. One also has to figure the future impact of between 100 billion and 500 billion in unfunded government pensions in California on Silicon Valley. Silicon Valley is one of our economies brightest lights and the people who control the money have spoken loud and clear about the lack of value the government is creating. I wouldn't mind paying the current taxes if I received reasonable value. Numerous people I have talked to figure we are receiving less than twenty cents on the dollar in value. This has a very direct and important impact on the semi industry and all other industries here. I hope Silicon Valley through the net and social networks can bring true transparency to government finances and value. You have to realize and accurately see a problem to solve it. There isn't a tech company that isn't impacted significantly by this and their actions in moving money speak far louder than words. Comments and questions welcomed.
Let me say right away that I do not reside in Bay Area. With that said, I do not quite understand your point of view. If California's tax policies are so bad why is it that people and businesses flock to SV? There are plenty of places with no state taxes in US. Businesses could have just gone there but they don't. Also, from everything I see SV is flooded with money with investments going to all sort of developments including some pretty silly ones. If anything, perhaps government should tax a little more? And sure I hate paying my taxes just like everybody else.
Intel has made a strategic decision to diversify its operations, and thus they invested in Oregon a state with no sales tax and plenty of tax incentives. In fact, Intel is one of the top employers in the state of Oregon.
lilo777, it's the full US and California tax structure that is actually causing much of the investment offshore as is stated in the article. By and large there is more investment outside the US than in and when in the US they are choosing states like Oregon. When the pension mess causes California taxes to shoot through the roof, look out. Even though Silicon Valley is growing, it has gone through booms and busts. The state and federal tax situation is keeping staggering amounts of money offshore as stated. When in doubt follow the money. Companies like Apple really employ the bulk of their people overseas directly or indirectly.
We should also look at why so many semiconductor startups are happening overseas rather than in Silicon Valley and the USA in general. My personal view is that one of the things that fueled the startup semiconductor culture in Silicon Valley was par-value option grants of privately held startups - which ended with Enron and Sarbox.
For those who are not familiar, the par value option allowed an early employee of a privately held startup to purchase shares in that company by exercising options at par value - typically a few cents per share. The company got a valuable employee incentive in the early days of the company where cash is critical. The employee owned the shares and worked hard to build value in the company and hopes for a big payday with an IPO or buyout. The government got capital gains tax on the gain when the shares were sold. Fair, fair, fair all around, and everyone was happy and prosperous.
Unfortunately there were some publicly held companies that were abusing this by awarding par-value options to employees as a form of compensation and Washington reacted. I agree with Washington on that one - that's abuse of the system. The difference between the strike price and the grant price would more correctly be taxed as compensation and not as capital gains. The law changed and said that companies needed to grant options at fair market value or else tax the difference as compensation.
However, Washington responded with a big broom and included shares in privately held companies in this change and effectively eliminated the ability of privately held startups to grant par value options to employees without creating a taxable event. My disagreement with this approach is that the value of something that you can't sell and can't use is zero - for example, a share of a privately held company. So now a startup that wants to grant options to its employees must grant them at fair market value - which is itself the subjective opinion of an auditor - lest they create a taxable event for the employee.
My theory is that this is one of the things that led to the decline of semiconductor startups in Silicon Valley (and throughout the USA). Certainly it was correlated in time...
The whole key on taxes is value, I would pay even double if I received value. But our current government has gone into value destruction mode on every dollar we give them. The government is also extending this value destruction to the private sector with poorly constructed regulations. The heads of Apple, Google, Qualcom and Cisco among many have cast the ultimate vote and moved money, jobs and a good piece of the future overseas. Corruption is the most serious threat to any empire and the Chinese have made their severe corruption problem a priority, we need to do the same. Although it doesn't seem like it, corruption in the US runs wide and deep as evidenced by public unions and PG&E buying politicians for their own benefit and this just scratches the surface. I hope the ethos of the tech sector on value can spread into the government. Social networks and the transparency the net brings I feel are our best hope.
What kind of value for tax dollars do businesses expect that they don't get in California? If California (and Federal) business taxes are so onerous, we probably wouldn't continue to be home to more billionaires in the world.
Taxes clearly are not the only factor a business considers when choosing locations. For instance, Estonia has the most competitive tax system (as measured the Tax Foundation (2014 International Tax Competitiveness Index | Tax Foundation). France has the least, yet according to the chart at http://bit.ly/1A1meBk, France has a way above average rate of startups than the world average while the US has held steady since 2007.
Its true that large corporations hold lots of cash overseas that won't be repatriated until the tax code for that cash is improved. According to a Fortune article, companies also don't bother repatriating their rising overseas cash balances because strong credit markets let them "synthetically repatriate" through cheap debt.
Beth, you are right to some degree. France rates in the top five in medical at a small fraction of the costs of the US, which ranks 35th in medical largely due to government regulation and the fact that the government is the largest purchaser of medical. It fosters inefficiency waste, corruption and fraud at every step of the medical process. It's like we also have the world's largest prison population (as much as Russia and China combined, I can't believe we are that evil). We also spend as much as the next twenty countries combined on our military and can't win a war, in fact we in some ways we are making the world a more dangerous place. We also spend a fortune on primary and secondary education and rank 35th in quality. I hope that we could bring some of the Silicon Valley ethos/culture of constant improvement at lower cost at an accelerating rate to government and the rest of industry. It is happening in private industry at a far faster rate than government, even restaurants are starting to use tablets. Until we stop tolerating failure in government agencies and employees, the problem will only get worse. Digital Equipment, Data General and many others are examples of letting companies that don't adapt fail, we need to do the same for government. Why should government employees and agencies be exempt from market forces and true competition (not when they write rules that only allow them to win and call it competition).
