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Jan. 15, 2021 - Epoch Times
20:54
California Companies Are Leaving and Taking Thousands of Jobs With Them | Manuel Ramirez
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You were telling me offline you've seen a trend of people leaving California.
Can you tell us more about this trend?
Tax laws here in California have really been such an imposing weight on the companies that people have said we need to leave in order to be able to survive and make a profit.
Who are these people and why should people care?
People that employ hundreds and thousands of people here in California.
Is it a percentage of tax?
Is that the state is not giving them enough incentive to stay?
The unions in California have been so effective at saying everyone should be an employee and everyone should be part of a union in this paradigm.
It's pushing California toward a more socialistic state.
Do you think they're going to generate more revenue by increasing taxes or do you think that the loss would?
It'll be a net loss.
We need to have taxes be reasonable.
Let a person keep as much of the profits as possible so that they can hire people and build their wealth and have a good life and have the American dream.
Is this trend going to reverse anytime soon?
I don't think as long as Californians keep electing people who are not business-wise, who aren't accountants and business knowledgeable, or even represent employers in the state of California, that we're going to see a significant change.
What is going to be the long-term impact?
I just don't see good things happening in California if those policies continue.
It's not friendly to business.
It's not friendly to people who work here.
It's like the Titanic headed toward the iceberg.
You see businesses start to leave.
Well, the jobs are leaving with them.
California is facing a business exodus as companies migrate to states with less taxes and regulations.
My guest today is Manuel Ramirez.
He's the chairman of the RJI International CPAs.
Today he discusses why billion-dollar companies are leaving California and taking thousands of jobs with them.
Welcome to California Insider.
Manny, it's great to have you.
Welcome.
Thank you, sir.
Thank you for inviting me.
So you were telling me offline you've seen a trend of people leaving California.
Can you tell us more about this trend?
Yes, so probably about 2006, 2007, I started noticing that more and more clients were coming to our firm, we're an international accounting firm, asking what they could save in taxes if they were to leave or move their businesses out of state, mainly to the zero tax states like Texas or Florida or Nevada.
And we would do the analysis and compute the tax savings, and so the trend began.
I would say in the last three years, I've noticed 80 clients leave the state.
We're talking $100 million, $300 million, billion-dollar clients that have left the state of California.
Taking with them thousands of jobs.
And it's just amazing because at the end of the day, tax laws here in California have really been such an imposing weight on the companies that people have said, we need to leave in order to be able to survive and to make a profit.
I think the last quote I read was over 4,500 tax bills were written in the last 10 years, half of which dealt with increasing taxes or regulations for business.
4,500 bills.
4,500 bills in the last 10 years.
In this state?
In California alone, yeah.
250 bills per year.
So it's 450 per year, right?
450 per year.
Very good, yes.
Yes, per year.
More than one a day.
Yes, well, if you average it up, more than one a day, that's correct.
So now, when people may hear that you've seen 80 people leaving, and they may...
Who are these people, and why should people care about...
So these are people that employ hundreds and thousands of people here in California.
And so in our largest case, the corporate headquarters moved to Florida.
The fulfillment house, which was jobs here in Irvine, California, left to Kentucky.
We're talking 200 jobs.
That's just one client that left.
And so what happens to the people that are here?
They either leave the state with them for the jobs, and California loses its revenue source, or these people go on the unemployment rolls.
And are people coming in?
Do you notice new people coming in?
Or is the rate the same?
People always say California has the best weather.
You want to be here.
That's true.
It is pretty nice here.
But if you can't feed your family, you can't house your family, or the jobs are leaving, then you go where the jobs are.
I'd say Texas and Florida and Nevada have done a wonderful job of supporting their businesses and bringing them into their states.
So I guess that's the way.
So you haven't seen the trend of other businesses moving in?
So if we lose, we'll say if we lose 650,000 people from California, which is, by the way, what it was like two years ago, it was 690,000 two years ago, we might see 400,000 or 500,000 people come in, but the net loss is over 100,000.
And the influential people that are leaving, that are taking these jobs with them, has a bigger impact, right?
Right.
And what you find is the centimillionaires, people worth $100 million or more, or the decamillions, people worth $10 million or more, they'll come to me and say, look, Manuel, if I'm going to sell my company next year or two years from now, does it make sense for me to be in California?
My answer is, if you're okay paying 13.3%, possibly 16.3%, On $100 million, so $13 to $16 million, stay in California.
But if you can leave because you have a multinational business or an international business, why not consider leaving to one of these other states and put $13 or $16 million in your own pocket?
I mean, that's the real math.
That's how simple it is.
So people will evaluate whether it makes sense.
And if their businesses are not just California-focused but multinational or international, I find in many cases they'll leave.
So is it a percentage of tax?
Is it that the state is not giving them enough incentive to stay?
Yeah, I think, well, you know, one of the problems with people and liberal policies...
They believe that government should be, socialism in essence, socialists believe that government should be the arbitrator of all good laws and judgment, whereas those of us who believe in the free market feel that we should be and the government should stay out of our way.
And so socialists believe that they should raise taxes as high as possible.
And if you look at some of the countries around the world, like the United Kingdom, when it tried socialism, it raised taxes to 90%.
So what happened in the UK? People left to Malta and other countries and Dubai.
We're finding that same paradigm in the United States.
We have 50 states.
California and New York are some of the highest tax states.
And so what happens?
If you are a billion-dollar company, you're taking home $100 million a year, and you need capital to make your business grow and compete.
Well, if you can go to Texas for Florida and pay zero taxes and save 13 to 16 million a year, that's real capital you can put into your business.
So there's a migration out of these high-tax states.
And as California continues to pass more regulations, like AB5, Assembly Bill 5, in essence outlawed the use of independent contractors.
Uber and Lyft had to pass legislation just to be able to pay its own employees.
As independent contractors.
But the unions in California have been so effective at saying everyone should be an employee and everyone should be part of a union and this paradigm is pushing California toward a more socialistic state, unfortunately.
So increasing taxes, so it's driving people out.
Yes.
Do you think they're going to generate more revenue by increasing taxes, or do you think that the loss would eventually?
It'll be a net loss.
As a matter of fact, some of the assemblymen and state senators have talked about the extreme loss of manufacturing jobs.
So now they're contemplating taxes on services.
Well, what will happen with big services?
Charles Schwab just announced recently that it's leaving San Francisco because they see what's coming.
California has lost so much in tax revenue and shortfalls, they're talking about exit taxes now.
If a person leaves California, they want to chase you for 10 years.
Personally, I think that's unconstitutional.
I don't think it'll pass.
But it doesn't stop them from passing these types of laws and chasing people for years.
For 20 years, I've helped people leave the state of California.
And it's amazing that the franchise tax board will chase people, not for days, weeks, or months, but for years.
There was a landmark case recently, probably about six, seven years ago.
It was the Hyatt case.
The man left to Nevada because he was going to sell his company.
He didn't want to pay California tax.
The Franchise Tax Board went through his trash, his trash, for two years.
That's the level of intensity they went after this man.
Now the man sued in court and he won.
And the franchise tax board argued, you can't sue us.
And the judge in Nevada was so upset that he said, you know, you're right.
If we were in California, they couldn't sue you, but you're in Nevada, so we're going to hear the case because what you've done is egregious.
It's extraordinary what you've done.
You shouldn't be chasing people for two years.
To determine whether they are really Nevada residents.
That's just not normal.
And so they won their case, and it was appealed, and he was able to get...
But that's the level of chasing that occurs.
So when someone tells me, if you came to me and said, I want to move Epoch Times to Nevada, I'd say, great.
We need to create an evidential file, substantial, to prove that you actually left.
Because California will chase you for years to prove that you stayed here.
It's an unfortunate paradigm today.
And so these policies, and you gave some examples of them, it's for getting more taxes.
Yes.
More revenue in the state of California.
More revenue.
But it's driving people out, right?
Are the government officials, the leaders, understand that?
Do they see that they're driving people out and this is going to lower the potential...
I mean, if they knew how to do pluses and minuses, you'd think that they would say they're taxing, people are leaving, maybe they should lower taxes.
Texas has a low tax rate, and people are coming into their state.
So you'd think they would just have some common sense and lower the taxes and invite people back in.
But I just don't see it.
You know, there's only one CPA in the Senate until this last election.
And it was one of your prior guests, Senator John Moorlach.
Yeah, Senator John Moorlach.
You had him on the show.
Yeah, it was a wonderful interview you did with him as he explained some of the infrastructure issues and the fact that the pensions were going to, the unfunded pension liabilities are bankrupting the state.
And they're chasing revenue to support something that's not sustainable.
And so, unfortunately, if you have a choice, and you do have a choice, anyone can leave California whenever they want.
If you have a choice and you can leave and put 13 to 16 percent of your profit back in your pocket, that can be substantial.
So many people are leaving.
And the state legislature hasn't, for some reason, grasped that they can't tax their way into revenue.
They can't.
People will just leave.
And they can leave.
Now, was there a time that the state was business friendly and wanted to attract businesses and cared about these people?
It seems like the state doesn't care about the people leaving, right?
Yeah, I mean, I think they care about the revenue, the legislators care about the revenue and how to create revenue.
But I don't think we have a revenue problem here.
I think we have a spending problem here in California.
We have so much expenditure, so many pension liabilities, infrastructure issues.
I think I mentioned to you, I was appointed by Governor Arnold Schwarzenegger to the California Board of Accountancy.
And I spent seven years on the board.
And I thought, when I got to Sacramento for the first time, Republicans and Democrats were fighting and that's all it was.
But it was a very...
Single-dimensional perspective that I had from the outside.
When I became the president of the Board of Accountancy, I realized you had an organization, the Board of Accountancy, that had over 100 employees.
No state in the country had even near that.
Texas, 20 employees, the board.
New York, 50.
We literally had twice as many.
Now, the argument is we have 100,000 CPAs in the state of California, so shouldn't we have more staff?
But then I realized that as any government agency, they're like an amoeba.
It's like a cancer.
They just want to grow and grow and grow and grow.
And as I looked around to the other departments of consumer affairs within the state of California, every agency was pushing to hire as many people as it could to have more influence within the state.
So while Republicans and Democrats are fighting, the state itself was creating its own And so it was actually a two-level fight.
How do we keep policies, liberal policies, reasonable to be business days?
How do we keep the regulatory bodies in check so they don't become so onerous that you can't even operate as a business?
So it was a fascinating look inside how it works.
There's a lot of...
Re-engineering that needs to happen in the state if it really wants to be efficient and operate efficient and be welcoming to business.
And to answer your primary question, I think Ronald Reagan, before he became governor, was a movie star.
And he would ask, why are we only making two movies a year?
He said, well, because the tax rates are over 90%.
So why would we make a movie if 100% of the income is going to go to taxes?
So he said, this is bad.
Taxes are so high, it's preventing productivity.
So he started the Reagan Revolution here in California and nationally to say, we need to have taxes be reasonable.
Let a person keep as much of the profits that they make possible so that they can hire people and build their wealth and And have a good life and have the American dream.
And so that's really what I think was really the last time we had a really wonderful California welcoming business environment.
And now, since you were in Arnold's administration, since then, has there been a big shift?
Has there been a complete change?
It's been a complete shift.
How is it now?
So during the recall, we were all trying to push someone that would be a reasonable person and would work with both sides.
And I think Governor Arnold Schwarzenegger did a fair job of trying to balance the interest of both the workers and the businesses.
Since that time, and I think as a result of the gerrymandering which has occurred within certain districts, there's been a shift and almost a supermajority of liberal democratic elected officials here in California.
That have passed policies that have been very anti-business, over-regulate the business, and very high taxes.
And so in the absence of a strong business voice and a very strong liberal voice that exists, you have a shift toward socialism and unfortunately Marxism, which is in the undertone of California politics today.
Do you think this trend, and we want to learn about taxes as well from you, where the taxes are going and this trend, is this trend going to reverse anytime soon?
I don't think as long as Californians keep electing people who are not business-wise, who aren't accountants and business knowledgeable, or even represent employers in the state of California, that we're going to see a significant change.
As a matter of fact, there was an assembly member from San Diego That recently passed, or got passed through the Business and Professions Committee, as well as, well, passed this bill through the Assembly, that would retroactively raise our California taxes from 13.3% to 16.3 or 7%.
It would be retroactive to the beginning of the year.
The bill sits on the governor's desk.
If he signs that, then...
Businesses will be subject to a retroactive...
So we already have to pay the 16%?
We're paying the 13.3%.
The governor hasn't signed the bill.
I'm not sure if he will, but we're waiting to see what he does.
So that's the trend.
Higher taxes.
AB5, no more independent contractors.
That affects a whole segment of our community.
Musicians and reporters who are independent.
People who are part of the gig economy who want to drive afterwards to supplement their revenue and their income for their families.
Because they have a child going to college.
This entire industry is being regulated out thanks to assembly members who don't understand their impact of these bills.
Do you think it creates more fear for your clients?
Like, they don't have certainty of what's going to happen next.
It might not be the 16%, it might be 25% the next year.
Is there some fear as well?
That's exactly what's happening.
I probably get two or three phone calls a week now from people concerned about where California is headed.
And my wife said, you know, in 30 years with you and this company, I've not seen you busier in December ever in your career.
And that's true.
I've never been busier because people are evaluating, you know, under a Biden administration, are we going to see a doubling of the capital gains taxes?
And will there be significant tax reform?
And in California, are we really going to see our taxes go from 13% to almost 17%?
And so this is a trend of people having as businessmen, as prudent businessmen, evaluating, does it make sense to stay here if they can move to a more business-friendly place?
We're not even talking about the cost of workers' compensation, the cost of housing for someone.
If someone can make a similar salary in this zero-tax state, but the housing is a third, I mean, all of a sudden your workers are able to have a better quality of life.
You hear anecdotally stories from Schwab.
We've stayed in San Francisco.
It's one of the most beautiful cities in the world.
But our employees can no longer deal with the number of homeless people that are attacking them on the way into the office or doing drugs on the streets or defecating, unfortunately.
It's a shame to see such a beautiful thing become such a disruptive, poor place for businesses to operate.
But that's what we're seeing, unfortunately.
Under these very liberal run cities, unfortunately.
What is going to be the long-term impact?
What do you see the future of California?
Yeah, so I didn't bring my crystal ball with you, so I'm not really sure how to project this, but it's like the Titanic headed toward the iceberg.
You see businesses start to leave.
Well, the jobs are leaving with them, and you'll see Texas become a much more robust state in Florida, and people will continue to come here because the weather's great and the opportunities are great.
But we're in an environment now where our governor's thinking we should shut the entire state down for three more weeks in the midst of a pandemic.
What about all the restaurants that have employees?
I mean, unemployment rates will continue to rise.
Are we going to live in a state of fear for the next 10 to 12 months, 18 months, until there's a vaccine that works?
I remember the last pandemic, the AIDS pandemic that hit, and we had an office in Mid-Wilshire in Los Angeles dealing with the Hollywood sector.
And the vaccines that came out initially, within five years people were dying because they hadn't tested them thoroughly.
And there was a rush to.
So there's a fear amongst people.
Do we take vaccines without knowing the consequences?
Because we have fast tracked them.
So maybe some people will take it fast.
Maybe some people will be a little bit more cautious.
So are we going to stay in a state of closure for two years?
If you look at Florida and Texas, they're completely open compared to California.
Disneyland has been closed in California for almost a year now.
In Florida, in Paris, in Hong Kong, it's been open.
They've managed to, as a business, find a way to open their businesses and still be cautious.
But California has this very narrow approach to how it's handling the pandemic.
And I just don't see good things happening in California if those policies continue.
It's not friendly to business.
It's not friendly to people who work here.
It's the Titanic headed for the big iceberg right there.
Do you have any recommendations for the California governor and California government officials?
I think they have to re-embrace what our Constitution and what our capitalistic free market principles are.
The things that made America great after the two world wars, if they just embraced those basic founding principles of America, I think we'd be in great shape.
I think it was Margaret Thatcher that once said, the problem with socialism is that eventually you run out of other people's money.
And remember, Great Britain was a socialist country, and thanks to Margaret Thatcher and her leadership, we were able to turn it.
So I think we need the great Siyamak Korani to possibly run for governor and possibly help us.
We are really busy right now.
After you run the paper into this multinational business, we could use you in this country.
country we need a voice of reason and truth of kindness that can say given all the people that are here in america we really need leadership that will bring this country forward and allow us to the state this state forward and allow it to be the greatest state in the world as it has been it's the size of the seventh largest country in the world you know it takes really bad socialist policies to ruin this kind of weather and this beauty and unfortunately we've seen that for far too long thank you manny Thank you, my friend.
Thank you.
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