In this past election, I did something I now really regret: I voted 'yes' to Proposition 30.
As this article by Ethan Anderson lays out, Prop 30 is very, very bad for entrepreneurs. Specifically, it institutes a retroactive tax on 2012 income. And for any entrepreneurs who had an exit in 2012 (or otherwise had a large chunk of income hit this year) and live in California, that's a really bad thing. It's especially bad for entrepreneurs because our income is often deferred for years only to hit in a specific year. If that was 2012 for you, suddenly you have a huge retroactive new tax burden you weren't expecting.
Instituting a retroactive tax is a shameful thing, and I can't believe I voted for a proposition that does that. And even worse, I can't believe that the ballot didn't mention it was a part of the proposition. Taxes should never be applied retroactively, because the populace can't go back and change their behavior or decisions retroactively.
When our politicians do something like this to us, it makes me want to become more conservative, and just never vote "yes" to anything that could have -- and in this case, did have-- hidden gotchas no matter how principled the ideal might be.
If you're more of an expert on Prop 30 than I am, and you feel differently on this, or feel that I'm missing something, please let me know in the comments below. Because right now, on behalf of not just myself but all the entrepreneurs out there, I'm feeling really violated by my California legislature.
Austin, TX is looking like a really attractive place to be an entrepreneur right about now.
One point worth making - you shouldn't feel violated by the state legislature they don't have any role there. It's California's prop system in general that is to blame. While it's trying to serve the ideal of direct democracy, it's deeply flawed. Special interests (no judgement there, we all have particular interests) are the ones who put things on the ballot and it's just too easy to put a measure up for consideration and to then structure it in a misleading way and subsequently promote it in a fashion that preys on people's general ignorance and goodwill. There were more misleading props than this one this year - like the horrible sex trafficking law that passed in a landslide and will inadvertently catch a lot of innocent people in its too wide net - but hey, who is ever going to vote against a law that says it means to stop child trafficking? I only voted on a few props I felt I understood well enough to make an informed decision about and I still did it with great resentment and reluctance, knowing that most of the votes being cast would be hugely uninformed. Direct democracy doesn't work when the signal to noise ratio is so low.
I'm not sure which is more damaging - the CA prop system or all the states that require such a super majority to pass new taxes that they can never raise sufficient revenue.
Yeah my general disposition moving forward will be not to vote at all on a prop unless I've researched the hell out of it. I remember thinking to myself when I was in the voting booth "I'm sure that the most relevant points would be listed on the ballot" but that wasn't the case.
Not blaming anyone other than myself -- like I said in the title, shame on me.
I have never made anywhere close to being able to be affected by this,
nor do I have immediate plans to. I'm a nonprofit entrepreneur, and
part of the reason why I am moving out of california is precisely
because of crap like this. I think there's a lot of questionable moral
anti- and pro- tax arguments (the "no double taxation" argument is one
of them, I think - if taxation is okay at any level, why is double
taxation any worse).
But a retroactive tax offends the morality because as a matter of principle the relationship between the individual and the state should be well-defined at any given time - to engender rational planning on the part of the individual. The only retroactive things that should happen should afford leniency to the individual (for example, commuting sentences). That this has happened, quite frankly, is terrifying on principle and as precedent - even if it does not affect me.
What if california decided to legalize marijuana via the legislature, and an upset populace decided to retroactively make it illegal by referendum in november, and police decided to round up people who had offended the law earlier in the year?
For what it's worth, I voted against prop 30, mostly because I knew that it was retroactive.
Are you truly 'voting with your feet' and moving out of the state due to this? What is "this" exactly -- the "prop" system in general, or the way it's being used in this specific use case? Or other?
Real entrepreneurs left California years ago. It's only the coddled Silicon Valley wannabes college grads that continue to congregate there (hipsters in SoMa who think their next boring social app will net them billions) but that will change very soon once people realize how stifling California taxes are to innovation.
This is the first of a multi-part blog post I'll be writing over the next week that will chronicle my experience raising a $1MM round for AppMakr.
I'll be sharing my learning and experiences as a first-time fundraiser out here in the Valley. My goal is to provide pragmatic tips to help other entrepreneurs understand the process and short-cut the time fundraising typically takes. Think of it as download that condenses 4 months of learning into a series of blogs you can read in an hour.
Be sure to subscribe to the blog if you'd like to get those future posts. Also, we're throwing a party to thank the investors who made this round possible, and celebrating the fact that over 1,000,000 people have now used apps made through AppMakr. RSVP here to join us on 10/28 at 6:30pm. You'll meet Mitch Kapor, George Zachary, Pietro Dova, Ben Narasin and other AppMakr investors.
For this first post, I scored an interview with Naval Ravikant, one of the co-founders of VentureHacks, which runs AngelList. AppMakr went through AngelList, and intros from AngelList were responsible for 54.5% ($545k) of the $1MM we raised. Needless to say, these guys rock. I'd also like to give a huge shout-out to my brother Sam Odio and amazing entrepreneur James Hong, both of whom intro'd me to Nivi & Naval of AngelList at the beginning of our fundraising process.
Here's the video with Naval:
Taxes has always been a weird issue in the state due the largely extremely divergent stances present in the political community. This year, taxes are substantially higher than ever after the bush tax cuts expired. not only that, but some types, if not most types, of income, are being hit by the affordable care acts 3.8% tax. Furthermore, some populous states, specifically new york and California, are stacking state taxes on top of that. Luckily some other populous states like Texas and Florida aren't taking this extreme of a stance. Here is my take on taxes and what the problem is.
1. Too confusing. The tax code in the U.S. is huge, categorized by numbers, sections, paragraphs and all sorts of really dry, boring, and highly mistakable stuff. none of it is easy to follow or understand, a lot of terms are invented, not reexplained, or extrapolated. On top of that there are countless of way to even start to report income and subcategories that apply or don't apply to each. Then to make matter even worse, there are state taxes which might take the same classification of incomes, and scrutinize them or label them in different ways, offering different types of deductions, subsidies, or benefits, making the balancing act a huge brain-exhauster. AND its not over yet folks, on top of all this, the IRS expects you to shell out money on tax professionals, which I find funny, because any mistakes you make are your own for not abiding to the tax code. Overall, this is ludicrous, if anything with the taxes U.S. citizens will be paying this year, the IRS should reimburse for tax professional advice (If they don't already do, not sure on this one, don't kill me).
4. Tax burden makes no sense is not adequately personified or individualized. As a young person, I don't get it, I see why its so hard or why it seems like you are climbing a huge wall for most young people out of college or starting their careers. You are getting taxes nearly the same as your peers. The tac bracket isn't slanted enough, and doesn't take into account wealth for the most part, only income. I'm not saying wealth should be taxed, that has its own repercussions, but at least income tax should be bracketed taking that into consideration. In some states the burden is so onerous that it can be difficult for recent grads, with no wealth or savings and tons of living expenses to me the ludicrous taxes they have to pay, while their superiors end up paying a little more but make substantially more, and take on much less risk. I find it is arguably the #1 thing or at least, one of the top things keeping young americans from really moving forward. tax burden significantly impedes your ability to invest and save. You work for a year, and after paying expenses, taxes, and the occasional small splurges how much do you have to show for it? 5k? maybe? I don't know, to me its ridiculous. Why should young people with almost no assets or net worth to speak of be taxed so highly? I only mention young people cause they fall under my category, and is one of the main concerns to me at the moment. The fact that someone with millions of dollars could easily leverage is capital and make way more than me, and pay only a 10% more tax or so, while I am stuck with little capital make substantially less, and as a percentage of my net worth, taking on extremely more risk, yet have to pay taxes almost as high. Tax, especially income tax and gains tax, do not adequately take into consideration the person, they only look at the cold-hard numbers and just slap on a tax, without looking at the person current situation.
3. I've said this countless of times, but now with the much higher rates reaching almost European levels of the top tax bracket, the quality and breadth of services provided by the U.S. government and/or state governments (highly depends the state) is very low compared to pretty much every other major country. We went to a war, that, we LOWERED TAXES going into, and now we need a huge inflation to pay it back. at the same time are being hit with new taxes for the affordable care act and for capital gains. On top of this states like California have raised their taxes super high, including a 13.3% tax on capital gains in California, which is absolutely ludicrous, and is actually motivating people to leave the state. Higher taxes does not mean better services peope, better management of revenue means better services. At the moment the budget and allocation is a total mess and the U.S. is somewhat, for some reason, still stuck in Cold- War hyper realist tendencies of expanding military and global presence, when we should instead be focusing only on defensive-security. Look at Russia, no global presence, very adequate security, significantly less spending. some submarines and carriers is all we really need out there, focus on protecting our important cities and developing reactionary protocols from within the U.S. instead of trying to have a ridiculous naval fleet (11 carriers people, i think 10 now, way more than any other country, yet not threats at the moment).
4. Worldwide income is taxed. I really hate this one, its like the final nail in the coffin. You live here, you don't like it for whatever reason, you want to leave, guess what? you're getting taxed anyways. I don't care if you are making money in The Congo or of some Andes mountain in Patagonia, you are gonna be a slave to the IRS no matter where you are, or for how long you are as long as you are a U.S. Citizen. Literally the only way to get around this law is to relinquish U.S. citizenry, which is very tough if you are trying to get citizenry in another nation that has a good passport. sometimes you have to spend several year, sometimes a decade, to get it. The only shortcut is marriage, and even that isn't enough in some places. Military service seems quite effective depending where you want to enlist, but that can have it own problems. Some countries let you get away with proving ancestry, but thats all on a person to person basis. Regardless the fact still stands, the U.S. doesn't want to let you go, they don't care about whether or not you use their services (I guess you might be using their embassies?) you better be paying taxes. Luckily they have a foreign exclusion act that lets you write off a solid amount each year if you are out 330 days of the year, which is a huge plus I guess. But with literally every other major country letting you not pay taxes when you don't live there, the U.S. seems like the odd one out.