It used to be that there were more people moving to California every year, chasing that California dream, than leaving. EVERY YEAR, no matter what. But now for FIVE straight years, the opposite has been true.
Even worse, businesses are leaving in droves. It all boils down to high taxes and excessive regulation. Yes, some leave California of other reasons, too. But these are the big ones.
I won’t get into why others are getting out of Dodge, as it would be mostly speculation. So I’ll tell my own story.
California is The Greatest Place on Earth
Everyone is aware of the classic California superiority complex, right? Hey, I’m guilty! In fact, I consider myself first Californian, THEN American. As much as I have traveled, I have never seen a place with such amazing weather, so diverse, and… well, totally and like… y’know… fully cool, dude! Yeah, I’m from the valley. The sun is always shining, the plants are always green, the temperature is always fantastic, and nearly 70% the Ferraris that leave the factory in Italy are destined for California! We have the actors, the music, amazing restaurants, vast beaches, and did I mention the sunshine?
In the winter, you can go skiing in the morning, and spend the afternoon surfing in 80 degree temps. I grew up in a place where on those rare days that we would get as much as 1 or 2 inches of rain, we had “rain days”, during which we didn’t go to school because it was WET, and if we turned on the TV, we would see reporters standing in the rain describing how wet they were getting in the rain. They would warn us of “Curbside Flooding”, and all of this with fancy ‘STORM WATCH’ graphics on the TV — My apologies to those of you reading this after shoveling snow.
I love California.
The Land of, Like, Opportunity, Y’Know
All four of my grandparents made the move west in the 40′s.
On my father’s side, they were Russian immigrants, who moved to Pennsylvania. They were pre-depression mattress-stuffers than ran a shoe store in South Philly and didn’t believe in banks. When the depression hit, they were literally sleeping on their life savings, and began to buy up property at rock-bottom prices. As we came out of the depression, they sold some and kept some, but were suddenly quite wealthy. There was only one thing to do at the time for anyone on the rise: They moved to Beverly — The Beverly Hillbillies tune is now in my head, although they were Beverly Moscovites.
On my mother’s side, my grandparents were second-generation Italians from Buffalo, New York. They were a simple middle-class family. My grandfather worked as a meat broker. He was transferred to Chicago at one point, then had an opportunity to transfer to Los Angeles in the late 40′s. He seized the opportunity.
Both sets of grandparents moved to California in part because of the weather, but mostly because it was a place of vast opportunity. On my father’s side, they saw a growing city, ripe for real estate investment. On my mother’s side, my grandfather chose to open his own meat brokerage in this up and coming place. They all did quite well.
The California Dream
It was the new version of The American Dream. The weather rocked, costs were lower, and it was a new frontier where a person could build a future. What a place!
I Left Once, But it Didn’t Take
Fast forward to me now. As I grew up, California was obviously well-established and L.A. was a massive city. The cost of living was extremely high, but that was always offset by the fact that we made more money than everyone else, so it was no big deal. But in 1994 I left.
When the 1994 Northridge Earthquake hit, our world was rocked. We were very close to the epicenter, and around the same time we had a business opportunity in South Carolina. My wife, who is an Italian immigrant, was really shaken up, and wanted to leave. I more or less caved, but I left my home city in tears.
The business in South Carolina didn’t work out, and we ended up moving briefly to Virginia. At the time, I had a side business that was growing, so I concentrated on building it, setting a financial goal that, when hit, we would move back to L.A. Eleven months after leaving California, we were back.
I swore I would never leave again.
The California Dream Tax
That little side business I had enjoyed tremendous success, and continued to grow into a very well-known software company through the 90′s until we took a major hit in the dot.com bust in 2001. It continued (and is still active), but we also ended up opening a tour company that operated in Italy that has since become extremely successful. With these companies, it has been hard to ignore what we pay in taxes, and at one point I looked at how much of our tax was avoidable by moving the company.
It is the California Dream Tax in my opinion. That is, what was I paying for the benefit of living in California? If I were to move my family and businesses to a more tax-friendly state, what would I save? The results are astounding.
Without accounting for deductions, here is a simple breakdown compared to Florida, the state I ended up choosing.
The corporate taxes, accounting for income, payroll, fees, etc. ended up being roughly 1/2 of California! So in keeping this simple, if I was paying $100,000 in corporate taxes in California, $50,000 of that was so that my company could enjoy the California Dream.
Personal Income Taxes are a major issue. California’s state income tax is 9.3% for anyone making a hair under $50,000. Florida is ZERO. So if I make $150,000.00, we are talking about nearly $14,000 in state personal income tax for the right to be in California. The kicker is that my federal income taxes are not even deductible, so as a California, you must pay taxes on the tax money you pay. Imagine taking $40 out of your wallet EVERY DAY and throwing it in your trash can while saying “Here is my donation to the California Sun”.
Property Taxes in Los Angeles are actually lower than here. My area of Florida is roughly 1.5%, while Los Angeles was 1%. However, Real Estate prices in Los Angeles are easily 300% higher, so for the same house, I would actually pay 1/2 what we were paying in L.A.
Sales Tax: L.A. Sales tax is now approaching the magic 10% mark. To be exact, it is 9.75%. Out here, it is a whopping 6%. A difference of 3.75% is pretty significant. If I spend $75,000 a year on taxable items, I would pay almost an extra $3,000 for the right to purchase them in L.A.
Other taxes and fees: The other little things really add up. Fr example, the registration fees for my car in California would be $700.00 per year. The same car is $45 in Florida. Gasoline taxes are higher, payroll taxes are higher, etc.
In addition, we noticed that the purchase of regular every day items was a solid 30% less in Florida than California.
When it was all said and done, we figured that toughly 40% of our gross income was paying for the California Dream.
So we left.
Arnold, Can I Come Home Yet?
I miss it terribly. Don’t you miss us, Arnold? After all, by leaving, we reduced your tax base. By subjecting me to a 9.3% income tax rate, now you get ZERO from me. By trying to charge me 1,600% more for my vehicle registration, now you get NADA. By raising the sales tax again, and again, and again…. Now I pay a 0% sales tax in California. Worse yet, I took with me all the money I contributed to the California Economy, the jobs I created in the state, all of the taxes and economic stimulus those employees created, and so much more.
How many more are like me? How many businesses have jumped ship? How many people have joined the exodus? Are the higher taxes compensating for all the lost revenue from all the lost taxpayers?
Seriously… because I would like to come home, but can’t reason it the way things are. Something must change, and I seriously doubt I am alone here.
The Irony of Who Is Leaving
It is almost laughable when you think about it. California is a very liberal state. Very liberal politicians like to talk about the poor, shrinking middle class. But think about who is getting out of California. If you are too poor, most simply cannot afford to leave. They are locked in their reality. The very rich aren’t too affected by the difference in tax rates. That leaves everyone in the middle, like me. In fact, every individual I know that has left is middle class or upper-middle. Yes, many large businesses are leaving, because the millions saved cannot be ignored by them. But smaller businesses, like mine… you know, the backbone of the economy… We just cannot afford to stay. So if we are in a business that CAN leave, we DO. That is, if I ran an auto parts shop that was dependent on location, I would be locked in. But that was not the case, so I left for greener (and rainier) pastures.
Doesn’t that sound like a recipe for a shrinking middle class?