Silicon Valley's Fiscal Sacrifice | Hacker News Reader

Silicon Valley's Fiscal Sacrifice

jacobexmachina.blogspot.com

22 pointsjacoblyles11 comments

I'd be a bit more sympathetic to Silicon Valley companies if they didn't send so much of their profits overseas to avoid paying the same taxes meatspace companies have a harder time avoiding: http://en.wikipedia.org/wiki/Double_Irish_arrangement

I read the "no one can say that Silicon Valley is not doing its part" and was strongly reminded of Google's 2.4% overseas rate http://www.bloomberg.com/news/2010-10-21/google-2-4-rate-sho.... Or Twitter's massive breaks to locate in SF. I'm not blaming them or anything, I just think portraying them as victims of high taxes and then lamenting about state and federal budget issues is so wildly hypocritical and misguided.

(edit: meant as a reply to the comment above by rayiner, which I agree with, incase it's not clear)

No one likes to pay more in taxes. But let's not confuse our whining and bellyaching for sound economic arguments. As one could expect, there's been such a flurry of these pieces with essentially the same argument, only different levels of histrionics. "The negative effects of higher taxes on investment growth are exponential.", etc

Two big problems with the article:

1) It looks at the capital gains taxation issue in isolation, instead of in the context of the whole tax code. All taxation reduces the activity being taxes. However, taxing one kind of activity (investing) less than another (labor) simply distorts the relative proportion of each activity, which is arguably worse.

2) It portrays the exceptional case, albeit common in the specific case of Silicon Valley, as the general case. Yes, if you pull the profits out of a successful venture into your personal bank account, then decide to reinvest it, you will lose some in capital gains taxes. But, e.g. when Apple takes iPod profits and reinvests them into inventing the iPhone, they do not pay taxes on it at the intermediate stage, because R&D expenditures are tax deductible.

Part of a permanent tax fix will hopefully be making re-invested capital gains not subject to any tax.

Startup Act contains provisions to that effect.

If Silicon Valley can't absorb the additional capital gains tax, why is it located in California?

Agree. There's a plenty of other places in the US with much lower tax rates and the standard of living is just as high. I know Silicon Valley is a great place to network with like-minded people, but I've never understood the need to move and start a business in one of the most expensive places in the country.

It's January and we eat lunch on the picnic benches outside our office. There's an ocean right here and good skiing less than 5 hours away.

People who can afford to live here will never leave. Those are the people the rest of us need to be around.

Pragmatism, and inertia.

If you are in tech and in the Bay Area, you have access to talent, networking, if you are B2B - many potential customers. If you are having issues with mongodb and you wish to talk to the 10gen folks - in person - it's not a big deal.

As an employee - you gain a ton of mobility. If I lose my job, or just want a different one, I don't need to pick up my life and move. Whereas, if I join your startup in Ohio or Virginia, or somewhere else with lower taxes that is more friendly to business - I could find myself moving across many states again 6 months down the road if it doesn't work out.

Personally I'd love to move - I think the costs of living are ridiculous - San Francisco's a joke in many ways, but on the other hand, the Peninsula/South Bay are still expensive, but boring suburban strip malls with some nice hillsides. But every time I do a job search to see what's out there in other parts of the country, the only place I could find similar interesting work is Manhattan. (There are outliers, I'm speaking in generalities.)

Can tech business gradually move elsewhere? Sure. But with Google, Facebook, Apple, HP, Oracle, Stanford, Berkeley, etc, etc, here - it's a very uphill battle.

It's not a question of Silicon Valley "absorbing" the tax.

Businesses and individuals will always act in their own self-interest. That has meant locating in California. I don't see this as changing that; the advantages of being in California are simply far too great.

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