I think I found a cure for both. First, the symptoms. Financially, California is close to being bankrupt, it spends more than it makes and runs a huge $361B debt, as illustrated by the online, live Debt Clock:
Unemployment is high; infrastructure is neglected; the pride of California, its UC Colleges, must raise tuition beyond the reach of the very people it was supposed to lift into higher education; California’s State Parks, another treasure, are neglected and being closed.
Fortunately, there’s a solution — and it’s right in our neighborhood. We’ve seen the wealth created by a flurry of recent Valley IPOs, and we’ve watched the rise in share price of more established companies. From Apple to Zynga, Facebook, and LinkedIn, we have a fresh crop of McBillionaires ready to help.
So, here’s what we’re going to do.
First, let’s all agree: $100K in monthly compensation is plenty. Beyond that, a 75% tax rate will help replenish the Golden State’s coffers.
Second, millionaires and billionaires won’t suffer much from a small yearly tax on their assets: 0.25% from $1.5M to $5M, half a penny on every asset dollar from $5M and up. Simplifying a bit, if you have $10M in assets you’ll pay about $50K in asset taxes every year, $100M yields $500K, $1B (think Facebook IPO) brings in $5M, and so on. A pittance for the great feeling of helping one’s fellow Californians.
Then there’s culture. Californians are perceived as a bunch of materialists obsessed with bling, cars, tans, IPOs, wineries, private jets, and various types of cosmetic augmentation and reduction. Outsiders deride our materialism, they call us nekulturny, they joke that the difference between yogurt and California is that yogurt has a living culture.
We can change all this by adding a simple clause to our asset tax code: Works of art are non-taxable. This would result in an explosion of art purchases and patronage. Sculptures, paintings, installations would grace every home and office of substance; artists from all over the world would flock to California, a Villa Medici for the 21st century.
Finally, we have to take care of our abused high-tech workers. Regard the poor Facebook programmers who had to spend yet another night in front of their computers before the IPO. Management profiteers attempt to ennoble this abuse by calling it a hackathon and parading the participants before the media, but we’re not buying it.
Let’s put an end to these destructive and demoralizing practices. Instead of a single 70-hour work week, we’ll create two jobs, hire two employees, each working 35 hours per week. And to promote a serene atmosphere, let’s agree that companies with 50 employees or more will have a “worker council” to oversee decisions such as staffing changes, compensation levels, group activities, layoffs, and the like.
Of course, as with any bold reform, some unintended, counter-productive side-effects may need to be considered.
Let’s start with the asset tax scenario. You work at a successful Valley company, you make good money and decide to help younger entrepreneurs by recycling your gains into their creations. You invest $1M in a startup and get 20% of its shares. As expected, you have to pay the asset tax on that investment, every year. The company attracts new investors at a higher valuation. Great, your initial $1M is now worth, say, $10M…on paper. You will now pay 10 times as much asset tax as before, $50K every year. Unfortunately, after years of valiant struggle, the company shuts down. You lose your investment — and the cumulated asset tax. You would have been better off buying art instead. Less angst, more civic pride (although, admittedly, less investment and innovation, fewer jobs).
You’ve long figured out I’m not serious. A 75% tax bracket, an asset tax, a 35-hour work week and worker councils — such naive measures would create a massive flight of money and talent out of California and into neighboring states that would be delighted to benefit from our boneheaded reforms.
And you’ve also figured out that the measures I’ve outlined, in a slightly oversimplified form, are or will shortly be in force in France. The asset tax is almost 30 years old and its current rate is likely to increase; the 75% income tax bracket is an election campaign promise and, believe it or not, the works-of-art exception is real.
This has resulted in a number of unfortunate countermeasures: High-tech execs pull up stakes and head to London or Brussels; European headquarters move out of Paris and Lyon or are created elsewhere. All because, to paraphrase François de Closets, French demagogues see no difference between Steve Jobs’ fortune and traders’ loot.
The 35-hour work week experiment failed to stanch French unemployment. The code that complicates the management of companies employing 50 or more people, as Frédéric noted two weeks ago, has resulted in an abnormally high number of companies with 49 workers or less.
From the outside, this is puzzling: Instead of attracting talent and capital, France creates a combination of fact and perception working against the very interests it purports to protect. In addition to the flight of taxable assets, this will accelerate the Brain Drain French officials often rail against. In the US—and particularly in California—we welcome French entrepreneurs, engineers, business people—and money. Do French politicians understand the real world, or will they continue to closet themselves in the French Exception’s virtual reality?
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18 Comments
Well the obvious answer to entrepreneurs running away to London or Texas ( and I’m sure everybody in Washington or Brussels would agree with me) is to ensure that the same high rates you describe are in force everywhere. Then we can tax those wealthy people to within an inch (2.54cm) of their lives, and there’d be nothing they could do about it.
My work with clients, by the way, is definitely a work of art, and thus tax exempt. It’s performance art, very creative. I’ll even add a splash of color to make it more artistic.
Provocative, and well-written, thank you!
An anecdote: i am French and was a few months in the mid 70s a temp clerk in the huge check-treatment center of a big French bank (2,500 employees—in those days, everything was done manually). On the 3rd of January that year, the guy facing me, a company employee in his early twenties, sat down at 9:00 sharp, took out his pens, placed them in front of him, looked at me, took a deep breath and announced his new year’s resolution: “Cette année, je fous rien!” (This year I’ll do zilch!).
Perhaps one of Europe’s problems is that well-intentioned policies end up feeding for life people whose behaviour is a drag on the whole edifice, while entrepreneurs are mocked when they try, and punished when they succeed?
Time for a little Jacobin / Guillotine magic to be applied to politicians, serving and retired, in France. N’cest pas?
Actually I think it’s a cheap shot. It’s fine to identify problems (as you have in in both California/the US as much as France/Europe). It would be helpful to propose solutions, to identify the bits that work well in different places. All that terrible French bureaucracy produces much better health outcomes etc. Clearly less taxes / less regulation is as unlikely to work as bad government and bad regulation. How do we come up with smarter rules / public investment / counting externalities than we do now?
Forgot to say how much I love Monday Note every other week!!!
@Gordon
From wsj.com today http://on.wsj.com/JIR7UD
This article is about Sweden. It addresses the questions you raise from a European perspective, and suggests a superior way of catalyzing growth.
This isn’t California, alas. We still have Jerry Brown and the trillion dollar “train to nowhere” and the untouchable public sector union pensions that are sucking money from the pockets of every other taxpayer here. Money that could otherwise go to educating our brightest UC students and boosting entrepreneurially-driven growth.
mvh
The 35 hours were perverted (and more) by overtime not even socially taxed.
Sarkozy had only one good word in all those years “vrai travail”, but when asked to explain he refused.
I guess that the 75% tax is only a principle but can be adapted in case of those startups, valley style or for artists.
California is great for the valley but for its infrastructure rather bad.
Sorry, but the French have become some of the most entitled and laziest people. Good luck getting your computer fixed within 2 weeks in France, when it can be done overnight in the U.S.
Half of the California Budget is education. It is a crushing expense. The cost of education has to be passed on to students. It is still a huge bargain compared to going to a private school. Since a college education – other than for the professionals – has little bearing on one’s career, perhaps fewer people need to go to college where they waste a lot of their time.
It is all well and good to mock the European welfare state, as JLG is doing here, but the discussion is more nuanced.
Here in North Europe and Scandinavia we have shown for decades that high public spending and high levels of public service are the catalyst and basis for high levels of education, wealth creation and social stability, and where corruption, poverty and ill health is at a minimum.
The fact is that there are many more or less bankrupt Southern European countries that still operate as feudal, corrupt, pre-industrial societies; ie. France, Italy, Greece, Spain. They receive billions from the EU, and it all disappears into the pockets of half-corrupt politicians and business leaders. Many of these countries were dictatorships until 30 years ago!
California’s problem would seem to be that the economic base for the state (IT/Silicon Valley and Entertainment/Hollywood) points in the direction of a Scandinavian model for government, where high public spending and high levels of public service drive high levels of education, wealth creation and social stability.
Instead, California is stuck with an approach to government that is prevalent in the less developed parts of the dear US of A, Southern Europe, etc, where corruption, poverty and ill health is rampant.
The rich in the California need to realize; living in a society where crime is low, all have good health and education, and where things ‘just work’, well, you know, it costs money! See it as an insurance! Pay high tax, get a good society, and then you can walk down the street in the evening without getting murdered!
Mr. Gassée,
Thank you for this post! You provide inspiration to particularly young entrepreneurs who want to work hard and have a decent life. I’m not worried about trying to become a McBillinonaire, and thus do not have my hopes set on that. However, earlier today I was down and feeling depressed after reading some of Dave Winer’s posts (and he’s in New York not France) suggested we’re in a bubble and its going to pop and it will be really bad for particularly young entrepreneurs and that no one is hiring (either young people or guys his age). I’m super duper weary of both the naysayers and the goldilocks who think they will be the next Zuck. Some of don’t want or need to be the next Zuck, but some of us still remember how hard are grandparents particularly (some of them being first generation Americans for example and pre-Boomers) worked their tails off and never bitched about it. That’s the entrepreneurial and hard working spirit I am reminded of (so the naysayers can go hobble in their caves, misery loves company)!
Never say “laziest”, you’ll ever find lazier. I won’t tell you who the French think the laziest people are…
Strange idea to compare California and France… It’s as ridiculous as comparing a leek and a tomato. In a next note, please try with Picasso and Mozart, or a horn and a guitar, or a saucepan and a bike.
(@buquet, si l’image de la France que tu gardes est la réflexion de ce stupide bureaucrate, je te comprends mieux)
This column used to be insightful. Now it looks like it’s been taken over by Bill O’Reily.
Jean Louis, merci beaucoup pour ce blog, beaucoup d’humour pour une situation.
D’une certaine maniere, j’habite une region (la Californie) qui a developpe un modele economique (l’innovation) auquel je crois. Ce modele est base sur un acces democratique a la richesse pour ceux qui travaillent, 4,000 millionaires en dollars grace a Facebook la semaine derniere et ce modele ne marche pas avec une systeme de taxes tels que le suggere les socialistes aujourd’hui. En tant qu’entrepreneur, je ne vais pas gagner ma vie pendant 5 ans (ou je pourrais la gagner mieux dans un autre emploi) pour que je puisse faire une sortie dans les annees 6 ou 7. Le systeme ne marche que si la ponction fiscale est relativement identique si je gagne 250,000/an ou si je gagne US$ 10 million de dollars/an. Dans le cas d’un systeme de taxe a 75%, on en reviendrait a socialiser les gains grace l’impot et privatiser les pertes (le manque a gagner que j’aurais chaque annee dans la periode de creation d’entreprise) et j’aurais plus interet a prendre un job dans une grande entreprise payant US$ 800 K/an que de tenter ma chance a la roulette de l’entreprenariat.
D’une maniere generale, je reste sur ma fin quant au modele social a la Francaise. Il a ete implemente depuis 1968 et depuis nous n’avons vu que du deficit de la balance commerciale et budgetaire et maintenant nous avons un deficit de la balance de paiements. Peut etre que ce modele marche mais nous avons eu beaucoup de gens competents au pouvoir depuis 40 ans et il me semble aller de mal en pis. Soit nous avons des politiciens qui n’y comprennent rien, soit le systeme ne fonctionne pas.
Et reprendre les memes et recommencer ne me semblent pas la meilleure des solutions surtout avec des solutions qui si elles sont implementees m’empecheront de visiter ma famille en France.
You had me going, for a moment, I thought you had too much Camembert and “Vin Rouge” at Café de Flore. It does provide a stark contrast to the debate. But, we need to move beyond ideology and start with specific answers. So what do you propose?
Judging by some of the comments made, first we have the blind men and the elephant and second, socialist statists in love with other peoples’ money are ne’er in short supply.
Ox meet gore…
The same 1 % boot lickers you see everywhere are here in force buying into and spwing the same nonsense and myths.
Socialism is like leeches- no matter how many patients are killed, the socialists always cry- “it’s because you didn’t apply enough leeches.”
“Ask not what your country can do for you – ask what you can do for your country.” – JFK
“république au service des français” – Hollande