Why isn’t California a tax haven?

Aug. 22, 2012

By John Seiler

The Obama campaign is running an ad attacking tax havens, including  Switzerland, Luxembourg, the Cayman Islands and Ireland, for taking Mitt Romney’s money. Although I’m not a Romney fan, I don’t care where he puts his money.

But the question arises: Why isn’t California a tax haven? Why don’t we attract money here because people want us to protect it?

Sure, California has the best venture capital market in the world. That’s great if you’re a 180-IQ computer nerd who needs capital to start up the next Apple.

But what if you’re just an ordinary wealthy person? Why would you put your money here and get it taxed at what could be a 13.3 percent state income tax rate if Gov. Jerry Brown’s Proposition 30 tax increase passes in November? And that’s in addition to what could be a 40 percent federal rate on Jan. 1. Total: 53.3 percent.

Switzerland, in particular, isn’t just a tax haven. It’s medium-sized country with 8 million people. Not all of them are bankers. I fact, the country goes to great lengths to diversify its economy. It is a major industrial producer.

Yet it’s per-capita income is $81,161, the fourth largest in the world, after only tiny Luxembourg and oil-rich Qatar and Norway.

By contrast, the high-tax, high-regulation United States is way down the list, in 14th place, at $48,387. California is about 15 percent higher than the U.S. average, so it’s around $49,112.

Yet, Switzerland boasts excellent roads, schools and other public services that are the envy of the world. Even as California’s schools are abysmal and its infrastructure is crumbling.

How does Switzerland do it? By keeping taxes low, the economy keeps growing. More growth means a broader tax base. And a broader tax base means, in the end, higher tax revenues.

In Switzerland, the top income tax varies by canton, from a low of 13.3 percent in Obwalden, to 29.26 in Geneva. And there’s no capital gains tax, except on real estate in some cantons.

Until Californians realize that we need to sharply cut taxes, not raise them, the state’s economy will continue to decline.

Except for Silicon Valley.