Businesses fleeing CA taxes before ‘revenue cliff’

Nov. 29, 2012

By John Seiler

Just after I wrote an article yesterday on millionaires avoiding taxes, I met a guy I hadn’t seen in four years. He told me about a friend of his who owns a small factory in Long Beach. The factory does well, and the friend gets a $3 million annual salary.

The friend is leaving California because of the Proposition 30 tax increase, and taking his factory and jobs with him to Texas. By leaving, his top state tax rate on the $2 million of income above $1 million will drop from 13.3 percent to 0 percent. On that alone, he will save $266,000 a year. Other tax savings mean about $300,000 a year just in taxes for his income.

For that, he can take a lot of vacations in California — or Cancun, or Monaco, or Tahiti.

His business also will pay much lower taxes and replace California’s anti-business regulatory climate with Texas’ pro-business climate.

That’s just an anecdote. But CNBC just reported:

“Companies are racing the clock to hand out billions in special dividends before year end—and some of them are taking on debt to do it.

“The latest is Costco, which announced a $7-a-share payout to stockholders Wednesday and is issuing bonds to pay for the $3 billion dividend.

“Fearing a tripling of dividend tax rates next year, companies have found one-time payouts and early payments of quarterly dividends as a way to beat some of the impact of the ‘Fiscal Cliff’.”

Backing Obama

Yet Costco’s executives were big supporters of President Obama’s re-election! In September, Costco co-founder Jim Sinegal spoke at the Democratic National Convention and said Obama was better than Romney for business. He said:

“Business needs a president who has covered businesses’ backs. A president who understands what the private sector needs to succeed. A president who takes the long view and makes the tough decisions. And that’s why I am here tonight supporting President Obama, a president making an economy built to last. See, in order for companies like Costco to invest, grow, hire and flourish, the conditions have to be right. That requires something from all of us.”

Well, Jim, shouldn’t that “something from all of us” be higher taxes on your dividends in 2013 instead of lower taxes on them in 2012?

Shouldn’t you instead be saying now, “Thank you, Mr. President, for increasing our taxes! And we’ll wait till next year on our dividends so our investors pay the maximum for you. We love you sooooooo much! XOXOXOXOXO. Costco.”

But he didn’t. Hypocritically, Costco actually put shareholder interest above political position. Millions of companies and tens of millions of people are doing the same thing, whether they supported Obama, Romney, libertarian Gary Johnson or nobody.

For California, that also means next year’s tax intake is going to be a lot less than Gov. Jerry Brown and other tax increasers expect, even from their beloved Prop. 30.

We may find that Jan. 1 not only is a “fiscal cliff” for the federal government. But for federal, state and local governments it will be — to coin a phrase — a “revenue cliff.”

4 comments

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  1. Rex the Wonder Dog!
    Rex the Wonder Dog! 29 November, 2012, 08:33

    Costco is a very well-EXCELLENT- run company-at every level. I think it is ironic that they made that $7 dividend announcement yesterday though.

    Reply this comment
  2. Hondo
    Hondo 29 November, 2012, 09:18

    Yes, many millionaires and business will leave. But the far bigger problem is the businesses and investment money NOT COMING to Kalifornia. It’s a lot harder to get up and move from a place. It’s a lot easier not to go there to begin with.
    Its hard to quantify those numbers, the amount of investment money not spent in Kali. The Obama people had no problem figuring out how many jobs they ‘saved’. I think they used the SWAG method ( Scientific Wild Ass Guess).
    We will see the results of the tax increase in the economic activity and the labor market and in the revenue streams in Kali.
    Hondo…..

    Reply this comment
  3. Dyspeptic
    Dyspeptic 29 November, 2012, 11:27

    It doesn’t surprise me that the crony capitalist hypocrites who run Costco love Obama. This is the same group that cynically profits from theft of private property via eminent domain and worked hand in hand with those rapacious redevelopment agencies that destroyed thousands of neighborhoods and displaced hundreds of thousands of low income homeowners and small businesses to enrich the politically connected.

    Also, what kind of “very well run company” takes on debt to pay out dividends. Dividends are supposed to be a way to make a stock attractive to investors by sharing a companies profits with shareholders. If you can’t pay dividends out of profits then you shouldn’t pay them at all. How can you make your stock more attractive by taking on more debt just to pay dividends? Don’t future profits suffer via increased debt service? If I were a Costco shareholder I would want to know what the hell they were up to.

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  4. Dyspeptic
    Dyspeptic 29 November, 2012, 11:41

    I just thought of one reason Costco management would want to take on debt to pay dividends. What if they plan on selling their stock this year and are trying to boost the share price for there own short term gain at the expense of the companies long term profits? Since these greed bags expect their taxes to increase next year wouldn’t they want to sell shares now and avoid paying the Obama taxes next year? These people are double hypocrites, they talk, talk, talk about how wonderful The Dear Leaders policies are while they use every trick in the book to avoid paying for those policies. They are disgusting pigs.

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