Regarding their actions being a symbolic betrayal of the Bay Area, I suspect most of them feel betrayed. High income tax in California doesn't reflect high provision of services. It's due in part to poor cost control and in part to poor property tax policy, such that California's income tax is a de facto transfer of wealth from working people and capital investors to property owners. These investors, companies and workers have paid a tremendous amount in taxes, and have been repaid with ever greater taxation, ever decreasing access to the property they are helping to subsidize, poor services, and even disrespect.
There's no reason to assume that every tax, fee or levy that the government issues is justified. The authors refer to Twitter and other companies as being "...let...off the hook..." for a tax but fail to mention that this was San Francisco's effort to impose its own payroll tax!
The reason some people are surprised by tax bills when they move is because they vested their shares or options while in California as part of their compensation and then later moved. Logically it makes sense in that situation to owe state taxes on income that you earn in the state you earned it.
When you later sell you shouldn’t owe taxes in California if you’re out of state for that tax year.
Why should VCs get a tax preference employees don't get?
This is one of a few examples where California's progressive politics haven't lead to progressive policies, whereas states that are much more non-progressive in their politics -- states like Texas -- have, as a practical matter, policies that are much better for working people.
I suppose that, hypothetically, when you purchase shares with cash it's "post-tax" cash; whereas when you purchase shares with labor it's "pre-tax" labor.
when you get equity as an employee you’re taxed when you vest and when you sell. you shouldn’t be taxed when you sell by California if you’re out of state.
It is not really correct to cast this in terms of owing taxes on income in the state that you earned it because options are not income. There is a non-symmetry here with financial options generally: if you lived in California and bought some options, then left the state, and then, as a non-resident, exercised the options and sold shares, you would not be taxed in California because there was no income in California. Income on a stock transaction is generally recognized at the time a security is sold. Obtaining options and stocks both represent an outflow of money, not an inflow. It's a regressive policy to treat options purchased in-kind with labor in an unfavorable way, with regards to taxation, relative to those purchased with cash.
So this tax question doesn’t apply to them. Rabois can move to Miami now and if he sells his IPO shares next year he owes California nothing.
It is likely that Rabois has a mix of compensation from his firm, as a practical matter, and some of it is likely to be options -- but even if not, Rabois and people like him have paid a lot of taxes in California. A lot more than they would have paid in most states. When you consider how much they paid relative to how well the state government has provided services -- taking other states into consideration -- it's hard to see how the people moving are betraying anyone. They paid and paid and paid.
Also see Uber/AirBNB "disruption" of not paying benefits/hotel taxes. I would be more surprised if they didn't "optimize" like that.
My point is don’t fall for their public relations spin BS.
A VC is investing in a company, like any other stock investment. There is no earned income.
An employee that forward exercises their options pay taxes on date of hire and vest automatically. Post IPO you’re only taxed when you sell.
1. Federal:
a) Income tax of 10% on income over around $12k (single) or $24k (married) up to 37% on income over $518k (single) to $622k (married). Capital gains tax is at the same rate for assets held less than a year but up to only 20% for assets held more than one year.
b) FICA, a wage tax. You pay for 7.65% for social security and medicare/medicaid on all wages up to around $133k and 0% above that.
2) State. This varies widely. Some states have no income tax, some states have income tax rates of as high as 13.3% (California). Most are around 5%. Each state has different deductions and rules. Capital gains is usually included in this. Most states (but not all) also levy a sales tax of around 4% to 8% on retail transactions.
3) Local. Most local taxes are in the form of property tax on real estate. The rates vary from around 0.5% to 2% of property value. Some towns levy a separate sales tax on top of a state one (if it exists). The real estate and sales taxes are used to fund schools, police, fire, etc. Many municipalities also levy fees for water, trash, etc. Some cities also have an income tax (for example NYC).
To give you an idea of just how complex it is, the US has approximately 11,000 different sales tax jurisdictions. And it's not just a matter of rates. What is taxed and in what context varies. For example, in NYC, food from groceries is not subject to sales tax. But food from restaurants is. Unless, I think the restaurant has no more than some minimum of seats and you orders your food to go. Some sales taxes can also vary by date (i.e. sales tax during summer, but otherwise none). There are also occasional sales tax "holidays" where no sales tax is charged.
Unsurprisingly, tax lawyers and accountants make good money in the USA :-)
SF afaik and all of Pennsylvania does the same.
NYC's rate is 3.9% I believe.
I think I mixed up discussion of a wealth tax with income tax. Or maybe that was somewhere else.
Thanks for straighting it up for me! :)
FICA is also paid equally by the employer (.9% ACA add-on excluded), so it’s only an accounting gimmick that prevents it from being a 15% tax on income.
If we are trying to be precise it was the Spanish who stole their land.
Not all Europeans are made equal.
Their hard work coupled with many others like them that worked with them made them rich. The same group of people could have been in another state and done just as well.
The people in California that made people successful are the Peter Thiels, Elon Musks and Keith Rabois of the area. VC money is the king maker. In the Bay Area it all started with Fairchild. It's the same reason why Seattle is successful. All the Microsoft money seeded the tech scene there.
These kingmakers have had enough of California and are leaving for greener pastures where they can continue to build successful companies without the state leaching off their work.
If they show up in Texas and other states and succeed in replicating their success, it will be clear it was them and not California that was responsible for the success. I'm glad California is rapidly losing its undeserved monopoly on tech.
And I’m speaking about his investments. Cutting a check is not “hard work”. You could argue Musk is different because he’s actually the CEO of the his company.
California and the SF Bay Area doesn't get credit for that. Heck, Silicon Valley was a bunch of fruit orchards for decades. Could have been a different set of fruit orchards in a different state.
Had Fairchild been elsewhere, the Traiterous 8 would have become the kingmakers they became in a different place and Keith Rabois or someone like him would have moved to that ecosystem instead to develop relations at the right time and become rich.
Seattle is the perfect counterfactual to the narrative you're invested in. Microsoft is Seattle's Fairchild.
Saying that all they are doing is "cutting a check" betrays the fact that you've likely never actually worked with a successful VC. The successful ones do so much more than cut a check. For example, the hard work they put in to help you identify and hire talent is indispensable.
Considering this concentration of talent, I think it's no surprise that the Bay Area is a hub for innovation, and the impressive list of companies founded by Berkeley [1] and Stanford [2] alumni is a testament to this. The concentration of talent is the environment that attracts funding and VCs, and will ensure that the Bay Area will remain the place to be in tech.
And Seattle, your "perfect counterfactual", has University of Washington, another state-funded top institution.
[1] https://en.wikipedia.org/wiki/List_of_companies_founded_by_U... [2] https://en.wikipedia.org/wiki/List_of_companies_founded_by_S...
Being an investor is not “hard work” in the same way it is if you’re a founder or employee. Anyone who says it is is lying.
I've worked heavily with VCs when I was the first employee at a startup that did well for a few rounds and they worked very hard to help us out. The only difference is that they lived better while helping out because they were already wealthy, but they certainly worked hard for us and for their other investments.
You can be fiscally comfortable and still work hard.
Now I'm not defending how much ownership they take relative to what they put in. Both us and our VCs worked hard. They just took a greater chunk of the equity because of the capital provided.
And the other way to look at it is California is expensive because the opportunity to become rich is greater here than elsewhere.
I can't tell if you're upset by their disingenuousness, or by their refusal to give a cut to the state. If the former, I sympathize. But it mostly seems to be the latter. The obvious rejoinder to which: why should they feel so eager to fork over their money to an institution that did ~nothing to contribute to their success?
> California is expensive because the opportunity to become rich is greater here than elsewhere
Your statement only explains the e.g. high housing costs. The tax question is orthogonal.
It's not gross to minimize your obligations towards people who have done nothing for you. Seattle is the relevant counterfactual: flourishing tech scene without the punitive tax burden that we're supposed to believe enabled California's success.
It’s a lot of cogs. There is no comparison when it comes to startups created in, say, the last 10 years or so.
I've lived both places. Seattle is not a low-tax paradise, nor are tax dollars completely and utterly squandered in California.
It is gross how, the more money one makes, the more entitled one feels to not have to give a dime back. It's a game to them.
Excepting special situations for certain PR and USVI residents, Washington state is as close to a tax haven as a US citizen is going to find.
> nor are tax dollars completely and utterly squandered in California
This depends on what you think the dollars should be used for. Most taxpayers would like to see their taxes used for provision of public services, and not in service of a vast public employee enrichment scheme. From this POV, the money is in fact squandered.
> It is gross how, the more money one makes, the more entitled one feels to not have to give a dime back
It's less about greed and more about abuse of generosity. See prior point.
Same with Elon Musk and Tesla’s absurd stock price. And probably a lot of other people given the hot IPO market.
Point is it’s so disingenuous for these people to say it’s because of SF or California when it has everything to do with taxes and not much else.
To blast the Bay Area and state which made them rich and then flee before they owe a penny is gross.