California’s $16 billion budget hole has garnered headlines, as has Gov. Jerry Brown’s proposed fix, which includes tax hikes and budget cuts.
But from the boots-on-the-ground perspective of business relocation coach Joseph Vranich, in an interview with AdvisorOne, a further increase in taxes for the 48th ranked state in terms of tax burden (according to the Tax Foundation) will only exacerbate the problem.
“There’s always a tax comparison with another state,” says Vranich (left), whose Irvine, Calif.-based Spectrum Location Solutions serves clients from large corporations moving 1,000 employees to family-run companies moving 10 people. “Every client I’ve ever served has saved various taxes by moving out of the state.”
Vranich has been tracking the numbers for years, and says he uses conservative public domain information that is beyond challenge but that really understates the problem. Officially, he says, 254 large companies left California last year, a rate five times higher than 2009, but he cites private economic modeling specialists that put the figure as high as 4,600 departures in 2010.
“My data is only the tip of the iceberg because there are so many companies that are [exiting] quietly,” he says, adding that the trend appears to be accelerating this year. Vranich is unaware of a cross-state database, but believes California has the highest number of business exits, and that “New York and Illinois are probably tied for second place.”
The top reasons prompting these exits are, in general, high taxes, excessive regulation and an environment of hostility to business.
“The No. 1 reason why a company leaves varies depending on whether they are in a profitable or unprofitable position,” Vranich says. “If you are profitable, the No. 1 reason is high taxes. If you are unprofitable, the No. 1 reason is the regulatory burden,” he says, noting that fees, fines and compliance costs are so significant that their elimination could be all that is needed to bring a company to profitability.