Wednesday, November 12, 2008

Tax Slavery Kind Of Is A Disincentive

At least for those enslaved.


CALIFORNIA'S BALLOONING DEFICIT: "California's budget deficit will grow to $28 billion through June 2010 unless lawmakers take bold action, possibly including a hike in the state income tax, the Legislature's nonpartisan analyst said Tuesday." Wow. Bold.

UPDATE: Reader Kartik Gada writes:

In the article on CA's deficit, there are several ideas that the lawmakers propose, except one : cutting spending to the extent of reducing staff.

CA's top state tax rate is already 9.3%. If the Federal Rate rises to 39.6% under Obama, and the CA State Tax rises to, say, 12%, with Medicare Tax an additional 2.9%, the marginal tax rate on small-businesses is a total of almost 55%.

How many people will still bother to start new ventures in Silicon Valley, at that point? How many will take the risk of joining the few that start up? People usually join a start-up in the hopes of a one-time pop of, say $2 million after a few years of work. If 55% of that is taxed, is it worth it?

Furthermore, why toil in pursuit of X-Prizes if the X-Prize winnings will themselves be taxed at 55%?

Yes, I think there'll be more migration to Arizona, Nevada, and Idaho, among other places. Which, of course, will spur further tax increases, since public-employee benefits, welfare programs, etc., must never be reduced.

ANOTHER UPDATE: Reader Michael Grant writes: "This 'one-time pop' is typically a long-term capital gain, and not wage income. Thus it will not be taxed at the 55% level." That makes sense, though I don't know anything about California state taxes. Still, that'll probably go up too.

MORE: Multiple readers write that Grant is wrong. Reader Ken Nelson explains: "Most of the 'pops' are stock options. You convert the option, sell the stock, own it about 1 second, to be treated as cap gain. Stock options profits are taxed as ordinary income. 55%. Thanks for taking the risk."

I'm glad Michael Grant was corrected. Ken Nelson is absolutely right.

The really cool thing is that in the midst of all this the voters of California just voted for a $10B starter payment for an SF-to-LA bullet train! Wisdom!

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