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Opinion: Don’t tax California’s family businesses to death

By   /   Friday, April 2nd, 2021  /   Comments Off on Opinion: Don’t tax California’s family businesses to death

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By Ken Monroe

In recent months, there’s been a lot of attention paid to some high-profile California businesses that have decided to move some or all of their operations to lower-cost states.

Oracle, the second largest software maker in the world, is moving its corporate headquarters from Silicon Valley to Austin, while Hewlett Packard Enterprise—whose founders launched the tech revolution from a Palo Alto garage in 1939—is decamping to Houston.

But it’s not just tech companies heading for the door. Between 2008 and 2019, some 18,000 companies left for states with better tax and regulatory policies, according to Spectrum Location Solutions, a firm that specializes in helping California companies move elsewhere.

As the president and CEO of a family business launched in 1931 and chairman of the Family Business Association of California, my fear is more large companies will decide that our state’s ever-increasing taxes and regulations have reached the breaking point and follow suit, and that state officials will look at family businesses to make up the difference.

There are about 1.4 million family businesses in California. Nationally, family businesses employ 63% of the workforce and create 75% of all new jobs. The members of our association are a broad mix of businesses, ranging from two employees to over 20,000, but on average they employ about 700 people.

And we’re committed to California. Thirteen of our members have been in business for more than 100 years, and the median for all members is 54 years in operation.

But even for California companies profitably run by families since the Beatles topped the charts, there comes a point where the costs become too much.

Take our taxes. California has the highest corporate income tax in the West, at 8.84%. And for members that are S corporations, partnerships or sole proprietors, they pay their business taxes at the rates for individuals, which top out at 13.3%—again, the highest in the nation.

California’s extremely progressive income tax structure means that the top 1% of taxpayers pay nearly half of the tax. So if more big corporations and their top executives move operations to low-tax or no-tax states, state revenues will plummet.

Since our progressive governor and Legislature believe no government program should be reduced or, heaven forbid, eliminated, that means they’ll be looking for higher taxes from the businesses and business owners who remain.

In fact, they’re already trying. Bills were introduced last year would have raised the top rate to a staggering 16.8% and established the nation’s first wealth tax on individuals’ net worth. Supporters said the two measures would have raised over $14 billion, and while neither passed last year, it’s likely both proposals will be reintroduced this year.

And those taxes are on top of sales taxes, which are 7.25% at a minimum and top out at 9.5% in many cities and counties, and in a few extreme cases at 10% or more.

Don’t forget our 50.5 cents per gallon gas tax, again the highest in the nation—and that doesn’t include the additional 11 cents per gallon California’s climate change efforts increase gasoline prices.
California family businesses do not want to leave. We have deep roots in our communities. But if our policy makers keep driving giant companies and their executives out of state, we know they’ll be looking to us to fill the void in the treasury.

If that happens, many of our companies will have to take a hard look at pulling up those deep roots and replanting themselves in more fertile soil.

• Ken Monroe is chairman of the Family Business Association of California.

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