No, that’s not my wish; rather, it’s director Rob Reiner’s. Today he announced a proposal to increase the normal maximum California tax bracket from 9.3% to 11% (anyone earning more than $1 million would pay an additional 1%). The new tax bracket would begin at $400,000 for individuals and $800,000 for couples. The money would be earmarked for mandatory preschools for every four-year old. A brief synopsis of the story can be found here (one-time registration required).
While pre-school, according to a Rand study, does increase the likelihood of a child being held back a grade, would decrease child abuse, and would increase high school graduates, this proposal would cause (1) small companies to have yet another reason to leave California; (2) more large companies would choose not to locate new operations in the state; and (3) more high-worth retirees would leave. I won’t argue the benefits from pre-school. However, I know what the costs of the plan will be. It’s likely that the voters will decide this in June 2006.
Small companies pay their employees $400k and more? Not really that small of a company eh?
The employees of the corporation are not the issue; rather, it’s the owners. Most corporations (85%) are S corps, which are flow-through entities. The income of an S corp is taxed on the owners’ tax return, not the corporation’s. Many S Corps have net incomes that exceed several hundred thousand. These individuals can relocate, and if the costs of staying in California exceed the benefits, they will. A large part of the aerospace industry left California in the 1980s. Most manufacturers have departed. Will successful S Corps follow?