Shooting the Golden Goose? Californians Flee Taxes

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SAN FRANCISCO -- California was once the dream destination of millions of people. But now many are fleeing the Golden State, and much of it has to do with high taxes and a generally anti-business attitude.

Economic analyst Jonathan Williams of the American Legislative Exchange Council (ALEC) points out what California lost in just the year 2011.

"Nearly 250 companies of all sizes left California for one of the other 49 states," he said.

MyTime.com CEO Ethan Anderson started at Google before striking out to create two new companies on his own.

"I am hearing almost every single day somebody saying 'I'm leaving California' because they're trying to avoid the high taxes," the San Francisco-based entrepreneur said.

Ex Post Facto Tax Laws?

Now California is even taxing backwards in time, deciding to demand more money from entrepreneurs, investors, and businesses for past years. It claims a tax break used by them is no longer valid, and it wants them to pay up, even for the last five years.

Anderson said California is telling people like him, "Now you guys owe us taxes going back five years ago, and we want interest on those taxes as well."

"It's a very scary environment to operate in when the rules of the game can change, not just going forward, but going back in time," Anderson said.

"California's a fantastic place to live. Don't get me wrong. It's just not a great place to do business," AdverseEvents founder Brian Overstreet told CBN News.

Overstreet, who started up two businesses in California, has suddenly found himself owing an extra $250,000 because of this sudden move by the state to impose back taxes for the past five years.

"It's the perfect time to start new businesses," Overstreet said of the present economic climate. "But when the state of California is telling you, 'We're going to change the rules on you after the fact by up to five years,' that puts a lot of strain and that puts a lot of questions into people's minds as to whether they really want to go through that or not."

Anderson shared Overstreet's sentiment.
 
"Looking forward when I want to start another business here...maybe not," Anderson said. "Maybe it's a little too risky because what if they make the business I'm doing illegal? Or what if they decide they want to do another 50 percent tax increase on my business?"

Texas Beckons
 
It's not just a matter of taxes, but of over-regulation and over-litigation. Texas Gov. Rick Perry has been launching verbal strikes into California to encourage unhappy companies to leave.
 
"When you have small businesses that it takes months if not over a year to get a simple permit to be able to build or do some work -- I mean the unions and the strangulation by regulation in California, it's just incredibly onerous," Perry told CBN News. "So they're doing a lot of things wrong."

Perry pointed to policies in Texas do just the opposite: free businesses up.
 
"Give people more freedom from over-taxation, over-regulation, over-litigation -- and it works," Perry concluded.

Overstreet said Texas and the especially hi-tech hub of Austin have such a wonderful reputation that they're tempting his business buddies to move there.

"I can tell you a number of them have told me specifically they are very seriously starting to look at that for their companies," Overstreet stated.

Eric Loeffel and his company Compass Learning have already made the move from California to Austin.

"It was hard for us to do business there, harder to do business there than it is to do business here in Texas," the Compass Learning CEO said of California.

The move was expensive, but the tax savings enormous.

"In the first year that we moved, we figured the savings was about a million dollars," Loeffel said.

One of the main benefits: no income tax in Texas, meaning a big hike in the paychecks of all the workers who moved.

"Everyone got an automatic increase in pay," Loeffel said with a big grin. "Automatic!"

Williams said the employers he knows talk about this all the time.

He paraphrased what they tell him: "Our employees are clamoring to leave high-tax locations that we have in California and go to lower cost-of-living states and lower tax states."

High-Tax States See Exodus

Now this urge to exit high-tax states has become a major national trend. Workers and businesses are fleeing in droves from the Top 10 high-tax blue states, like California, to the top 10 low-tax red states, like Texas.

"One American per minute has left one of the high tax states over the last decade," Williams stated.

That adds up to an exodus of about 4,500,000 Americans from the highest tax states to the lowest.

"People vote with their feet, and they're voting very strongly towards the low-tax states," the ALEC economist said.

"Talent and money are the most transferable things in this economy right now," Overstreet insisted. "And it doesn't much matter whether you work in Austin or California - if you can do better for yourself, you can provide your employees a better lifestyle, you have to be considering it."

If this trend continues, America could end up with a group of economically failing, possibly bankrupt states who chased their wealth away.

"You're going to lose your business leaders. And you're going to be left with a population that is more dependent on the welfare state," Overstreet pointed out.

Anderson agreed.

"California's going to end up getting less taxes than they would have gotten if they'd just left things alone because all these people who are generally wealthy are leaving," Anderson said.

Shooting the Golden Goose

Williams said lawmakers in well-to-do states are telling him they're frightened they'll be forced to someday bail out a bunch of deadbeat states.

"They say 'California's the new Greece. Why are we going to give our hard-earned tax dollars to bail out basket-cases like California and Illinois?'"

Anderson is worried his home state won't turn itself away from this economic downward spiral.

"California had so many gifts," he lamented. "How could this state actually be bleeding people? It seems like they're trying to shoot the goose who lays the golden egg."

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Paul  Strand

Paul Strand

CBN News Washington Sr. Correspondent

As senior correspondent in CBN's Washington, D.C., bureau, Paul Strand has covered a variety of political and social issues, with an emphasis on defense, justice, and Congress.  Follow Paul on Twitter @PaulStrandCBN and "like" him at Facebook.com/PaulStrandCBN.