The empty ethics of tax avoidance
Moving to avoid taxes is a popular water-cooler conversation in Silicon Valley these days. Especially with a busy initial public offering season heating up this year, people talk about taking up residency in a low-tax state “just before” the cash from their stock offering rolls in.
This kind of chatter will soon confront the reality that tax compliance officers in the state are not easy to fool. But more than anything, this speaks to the empty ethics of millionaire tax flight.
California, in many ways, is an incubator and background business partner for tech companies. The opportunities and quality of life in the state attract an incredible talent pool, making it the best place in the world to start a tech company. Nobody thinks about launching their grand tech vision in low-tax places like Reno or Tampa. For aspiring entrepreneurs, there is no substitute to being where the action is. Being in California is a de facto ingredient of business success in the tech economy.
We often think the way for a state to be competitive is to be like Texas: a low-tax, low-infrastructure, low-services state. But the most competitive places in the United States are New York and California — places that have had high taxes and high services for generations.
There are real operating costs to maintaining California’s quality of life and its place at the cutting edge. The state needs great schools, colleges and universities; infrastructure like transportation and water; public safety; urban amenities; and a social safety net that can handle challenges like homelessness and mental health crises. All of these are part of the good life in California, and they cost money.
The state needs tax revenue and replenished public investments to keep the California dream strong.
Trying to avoid taxes on an IPO is like saying “California is awesome, as long as someone else pays for it.” The people of California would be right to think, “these folks just wanted a free lunch — they skip out on the check, and then call themselves self-made millionaires.”
This taking advantage of a collective good without paying for it is a philosophy of freeriding, and perhaps it is a sign of the times. President Trump has spoken of tax avoidance as a mark of intellectual prowess. “That makes me smart,” he said of not paying federal income taxes.
If the water-cooler talk is to be believed, many in Silicon Valley are inspired by this shirking of civic responsibility. They think it is smart to make money in California, while looking for a back door to tax avoidance.
If tech innovators really don’t need California for their success, they should go to a low-tax place like Reno to build their business from the beginning. They should not try to pretend they made it in Reno after becoming successful in California.
It is worth noting that California sees more high-income people moving in to the state than moving out. Indeed, the problem in California is not that rich people are moving to Reno, but rather that they are moving to San Francisco. They bring with them painful problems of affordability, congestion and strained livability.
Most millionaires in the state remember that California was a land of opportunity when they were young and starting out, and it is still a good deal now that they are paying the millionaire tax. They don’t regret becoming successful and paying the top-tax rate.
It is high time for someone in Silicon Valley to speak up and say California is not just a cash machine. With great wealth comes great responsibility.