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Why California Is Not a Good Place to Do Business

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“Why California is Not a Good Place to do Business”

When this country broke away from Great Britain on July 4, 1776 it was from then on known as, “The land of the free and the home of the brave”, but moreover was a place where entrepreneurs could come and make a life for themselves without being oppressed, also known as the ‘American Dream.’ For hundreds of years this country has lived up to the standards of what the ‘American Dream’ conveys, but as we move further into the 21st century the businessman is becoming increasingly more oppressed, especially in California. Since the 90’s, Business’s have deemed California as the least best place to do business and have since started moving out at an increasing rate for a variety of reasons including, rising taxes, litigation costs, and regulations. The rest of this research paper will go through those three main causes of why “California is Not a good Place to do Business,” as well as what effect it has on the people. (And when done reading ask yourself if you would start up a business in California.)
Cause: Taxes
Its common sense that to improve the health and profitability of a business certain measures must be taken, for instance doing the math on what kind of taxes the business is subject too depending on the state of establishment. According to CalTax.org, “California is the third worst state business tax climate in the nation!” Broken down California has the highest sales tax, gasoline tax, and personal income tax in the nation; as well as the 15th highest property tax and the highest corporate income tax in the West! Along with the high taxes on businesses as a hole, the Business owner’s income is suffering tremendously because of the passage of prop 30! This unfair proposition delegates that for people making 250,000 plus a year must pay an additional 1% percent coming up to 10.3-13.3% for state income tax! This proposition was passed due to people who bought into ‘get even with the rich’ in order to justify higher taxes. The outrageous taxes tacked onto businesses and business owners like proposition 30, either pushes them out or discourages them from setting up in California. The states that are benefiting from California’s tax laws are Arizona (4.5% state income tax), Nevada (0%), and Texas (0%), of which all three states are more tax friendly in every area dealing with taxes compared to California.
Cause: Litigation
Another issue with establishing and holding business in California are litigation costs, which drive up company’s insurance costs. In 1913 California set up its workers compensation in hopes of keeping litigation costs down for the business’s and to help injured workers receive money to live on. But in recent years there have been ‘way too many hands in the cookie jar,’ due to fraud, litigation, and bureaucracy which unfortunately keep the costs high. With all the legal red tape businesses spend a fortune in litigation and over time this drives up the prices of insurance costs, especially for labor-intensive businesses. According to San Francisco Business Times, California ranks at 55% higher in Workers compensation compared to the national average. And depending on the size of the company this can incur an unfathomable number that the company must shell out for insurance to keep their business safe from lawsuits.
Cause: Regulations
As an entrepreneur digs deeper into what it takes to actually establish a business in California, they are met with a huge wall of regulations. These regulations include licenses and permits that can take upwards of eight months compared to only six weeks when establishing a business in Texas according to an interview on Fox11 called, “Saving the California Dream!” When comparing two and half months vs. eight months time, it is again common sense to establish a company in a state that has less legal red tape and a shorter regulation wall to climb over. This is moreover why California’s three geographically neighboring states are able to poach Cali’s business and encourage them to set up shop in a more business friendly state.
Effect: Employment
When reading through all of the unfriendly business practices that California supports including high taxes, high litigation costs, and a high regulation wall to overcome, it becomes intimidating for a company that is looking to establish a company in California for years to come. It is said throughout different articles that California is the place of growth that attracts professionals and talent like no other state; but in recent years that statement has become a thing of the past. History for the last 20+ years has been telling us that Califorina is doing something wrong. According to an article from Manhattan instatute.org since 1990 California has lost a total of 3.4 million to other states and moreover has become a state of reverse migration, due to employment opportunities and lower taxes offered by other states. It is also very colorfully worded by a JP Donlon a contributor for Chief Executive.net that, “California’s enduring place of perpetual decline continues… once the most attractive business environment, the Golden State appears to slip deeper into the ninth circle of business hell.” As businesses move out of California so do the jobs causing job loss and California’s unemployment to rise, consequently making it the Nation’s largest welfare recipient! And as you look further down the time line as people increasingly move out of California, it will spread the burden onto the current California residence causing a domino effect of rising taxes.
So what should a business do? Should it take refuge in California or does it move to a Geographically neighboring state that welcomes them with open arms equating to, lower taxes, less litigation, less regulations, and effectively making a company all that it can be? I don’t know about you but I would like my business to be all that it can be! Sure California may have better weather, beaches, and property, but as an entrepreneur and business owner, you will take the path of least resistance and so far the cons seemingly outweigh the pros of having a business based in California and that is what history is currently teaching us.
Works Cited * Gray, Tom, and Robert Scardamalia. "Civic Report 71 | The Great California Exodus: A Closer Look." Civic Report 71 | The Great California Exodus: A Closer Look. N.p., n.d. Web. 30 Sept. 2013. * Holstein, William J. "ChiefExecutive.net." ChiefExecutivenet Chief Executive Magazine What Keeps Texas on Top Comments. N.p., n.d. Web. 30 Sept. 2013. * Rauber, Chris. "Report: California's Workers' Comp Premiums Are Third Highest in U.S." - San Francisco Business Times. N.p., n.d. Web. 30 Sept. 2013. * ""Saving the California Dream" Half-Hour Special on Fox 11 News: Part 1-The 'Exodus."YouTube. Fox 11, 17 Jan. 2012. Web. 30 Sept. 2013. * "Where Does California Rank?" CalTax. N.p., n.d. Web. 30 Sept. 2013.

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