A wealthy entrepreneur is threatening to abandon California because he's outraged over higher taxes.
Ethan Anderson, ex-Googler and co-founder of the tech company RedBeacon, penned a column in AllThingsD Tuesday criticizing the state for passing a tax hike last month on Californians making over $250,000 a year.
“Given the inherent risks entrepreneurs take just to start a new company, will they want to now take on additional tax and regulatory risk?” Anderson writes. Founders won’t stop creating businesses, he argues, they’ll just do it elsewhere, and California will lose “the wealthy and productive classes we need to stay and rebuild the Golden State to its former glory.”
If that sounds familiar, NY Mag's Kevin Roose notes, "it's because it's the same kind of veiled threat — 'If you raise our taxes, we'll move!' — that Wall Street millionaires and billionaires have been making for years." Yet studies have shown there is little evidence that the rich flee high-tax states.
"Entrepreneurs who create something out of nothing don’t care what tax rates are," Mark Cuban once said. "Bill Gates didn’t monitor the marginal tax rate when he dropped out of Harvard and started Microsoft (btw, it was a ton higher than it is today)."
So what's Anderson so ticked off about? Perhaps it's that California's new tax hike, known as Prop 30, includes higher rates on income that dates back to Jan. 1, 2012, and Anderson's startup, RedBeacon, was acquired by Home Depot on Jan. 20, 2012, a mere 20 days after the cut-off.
In his column, Anderson doesn't mention his company's sale earlier this year. But he does make note of the 1,000 or so Facebook millionaires who will see higher taxes on their IPO earnings even though the social network's offering was in May, months before Prop 30's passage in November.
"Thousands of workers toiled long hours and worked for low pay (at least in the beginning) to build one of Silicon Valley’s generational companies," Anderson writes. "When their deferred reward hit eight years later in the form of a $90 billion IPO, it proved an attractive tax target for California’s politicians."
Anderson isn't the only one to say Prop 30 unfairly punishes the state's entrepreneurs, including those who have led the valley's latest tech boom.
Bryan Goldberg, founder of sports news site Bleacher Report, expresses similar outrage in a recent PandoDaily column: “They have decided to intentionally target entrepreneurs who have sold their shares in companies like Facebook, Yelp, LinkedIn, Yammer and every other company that has enjoyed high capital gains after years of hard work.”
In an interview with PEHUB, the San Francisco-based founder of Nuzzel, Jonathan Abrams, digs into the details on why Prop 30 is particularly harmful to entrepreneurs, who typically get the majority of their pay in lump sums through IPOs or acquisitions, rather than annual salaries.
"Someone who makes $250,000 for five years in a row will not get a tax increase," Abrams tells the news site. "But someone who made little income for four years and then $1 million in the 5th year will get hit [with $30,000 in extra taxes]."
Meanwhile, other Silicon Valley CEOs and investors have come out in support of the tax hike on wealthy Californians, including Salesforce.com CEO Marc Benioff and venture capitalist John Doerr, who have both contributed money in favor of the initiative.
“Like in the rest of the country, the highest earners in California have seen their wealth grow exponentially more than people at lower income levels,” Dan Newman, a spokesman for the Yes-on-30 campaign, tells Mother Jones. “This asks the most wealthy folks who have been extremely fortunate with recent economic trends to pay a small amount more, so that all of California’s schools can benefit.”
But Anderson isn't buying it. Money from Prop 30 "simply replaces money the governor redirected from education to other priorities in his 2013 budget," he writes. "So a more honest and fair characterization of Proposition 30 is a general purpose tax hike in the state which already has the highest income tax rates in the nation."