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?