Allen: Hemphill: Choice is good for business owner, bad for state

By Allen Hemphill

Before the computer age, I thought that modern transportation was man’s greatest invention. Before modern transportation, most people lived, worked and died within a few miles of their home.

Allen Hemphill

With the evolution of efficient transportation, people were free to work anywhere in, first the state, then the nation, and quickly — the world. The world we now live in is a world where people can go where they wish, and more importantly, they can go where they are wanted.

Recently, the news has featured the socialist president of France proposing a marginal tax rate of 75 percent on those who earn $1.4 million or more a year. The reaction of many wealthy French residents is to move their residence to Belgium, Britain, and even — if you can believe it — Russia. (Russia now has a flat tax.)

This is not just an international matter. The State of New York has been bleeding millionaires to other states for years. The flight of millionaires is not unknown in California. Allow me to give you a local example.

I have a “digital friend” — someone whom I have never met, but with whom I have exchanged hundreds of emails because we post on the same blog and have the same philosophy.

Last year, this friend quietly mentioned on the blog that California was getting too business unfriendly for him to continue. Of course the liberals blew him off as just a talker. Privately, he texted me about a few towns in other states, and slowly he told me about his decision.

He owned a high-tech machine shop here in North County, employing about 25 highly trained people, subcontracting to Raytheon and other companies, making parts for high-performance jets and space vehicles.

Recently he sent me photos of huge flatbed trucks holding modern machinery. His company was on the move to a city in Utah. Last week he texted that his new location was leveling the machinery.

Not only did he take his company (and his substantial taxes) to Utah, he took more than two dozen well-paying jobs. In fact, he took more than half his employees and their salaries with him. He paid for their relocation.

With the dearth of available jobs, it is highly likely that not only did the owner take all the economic benefit to the local economy, and the state, he also left a vacant industrial space and at least a few people on unemployment. (He offered everyone relocation expenses, but about half declined.)

While computers have moved into the first position as the greatest invention, modern transportation is still a close second. It permits people to leave places where they are not wanted and relocate to places where they are more comfortable. The competition between states and nations is healthy in that it maintains balance.

Choice is good.

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Posted by Staff on Jan 16 2013. Filed under Columnists. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.

14 Comments for “Allen: Hemphill: Choice is good for business owner, bad for state”

  1. David C.

    Allan, choice is indeed good. I'm surprised only one employer can be mentioned in your column though, Labor economics would suggest that there is a flood of businesses that should be leaving the state. I'm not seeing that though. I'm glad that your digital friend (I hope he's not of the Manti Te'o variety and does not exist) has found his new found utopia. Low taxes, good work force, lower property values. It all makes sense. I think your point should be that businesses make trade offs, as does labor, of quality of life vs. standard of living. We, you included, could have a much higher standard of living in other places either in the US or abroad, but choose to live in California, despite its costs, due to our belief that we obtain a better quality of life here. I'm sorry your digital friend no longer saw the trade-off as being favorable, but I am glad that you still do. And though we may see things differently, I hope I can fill in the holes that your friend leaving town has left.

  2. RichardRider

    One thing's for sure — it's likely that NO machine shops are moving TO California. Yes, California is like fly paper — one tends to stick here.

  3. Ron

    I am the gentleman Allen is referring to in his article. Given that this State passed yet another tax, passed AB32, and lord knows where this will end, I chose to end my residency in California. I, in FACT, moved to Utah. The property taxes are lower, housing costs are lower, and generally a freer environment. Given where the State of California was headed, I put this choice up for a vote in the shop, and we had a majority. I laid out for all my employees that every dollar taken from me, was actually being taken from them. The additional tax of just Prop 30 cost our company another $33,000, which could have gone to my employees in wages, benefits, or new machines/equipment.
    California has chosen to take and give to those they believe should receive benefit, and in my opinion, mistreat business owners and employees who are producing.
    Enough is enough, we packed it up.

    • Tom Yarnall

      Ron, the best of luck in Utah. It's a great state where the citizens have rational and good values. The clouds Brown and the liberals are putting over California is quickly taking away the only thing that gives it an advantage, climate. How much is sunshine worth? We're starting to find out.

      • Ron

        Wait til it's time to pay for those pensions….
        $500 billion, as I recall.
        Approx. $15,151.51 for every man, woman, and child
        One other thing…
        Lib's seem to poo-poo the idea that AB32 will lose jobs.
        Currently, so afraid of the results of implementation they are giving away the carbon credits, they will over time, phase in the costs.
        You've seen recently in the news that several large companies left due to precisely this climate utopian legislation.
        You can add me to that list. Although, the legislation does not directly affect me now, it will in time. It always does.

    • David C.

      Ron, good luck to you and your employees in Utah, you will be missed. How did you come to Utah as your location and not Texas or Tennessee where there are even better business climates, and no personal income taxes? Seems to me one of those locations would be more beneficial for you. The only business advantage I can see for Utah vs TX or TN is if the bulk of your customers or suppliers are still located in California.

      • Ron

        Utah itself was a compromise. As Allen stated in the article, my employees are very valuable, and hard to replace given the level of skill required to program, and run 5-axis machining centers. I did pay for relocation of my employees, some were initially put up in hotels, and now have found homes or apartments.
        It really depended on the individual need. The distance from San Diego was important to many. It's roughly 10 hours driving distance, and my folks wouldn't be days away from family still in California. Texas, although it has no income tax, is at least a 3 day drive, or a plane ticket. Tennessee I believe has a 6% income tax rate. Utah has a 5% rate, across the board. I find that pretty refreshing.. a flat tax, and everyone pays something. I'm not the type of person who does not want to pay taxes, we all need to pay for the running of the state and the nation. But when states and the Federal Government make it so millions of people have no responsibility to pay for the services they consume, something has gone wrong.
        Utah would also put us a bit closer to the center of the nation, lowering shipping costs to to most of my customers. Lastly, this was not mostly about money, many people misconstrue that. Freedom to live and be left alone is something I believe California has forgotten about, Utah, in my opinion, is a better option.

        • David C.

          Thanks for the information Ron,it is very informative as to your thought processes and rationale. It sounds like it is a good compromise for all. I think there are very few places left in California or the United States where one has the true freedom to live and be left alone and I hope Utah lives up to your expectations.

  4. Tom Yarnall

    Phil Mikelson withdrew from investing in the Padres because of the business climate in California. He pays 62 to 62% in sales, state and federal taxes. He says he has to make a change and will announce his decision on Wednesday at a press conference.
    I suspect California will lose another bread winner and his staff.

    • David C.

      Phil admits today of foot in mouth disease, however I am sure he is getting great advise out of his advisers and sponsors at KPMG. As a golfer who owns or leases his own jet to get to US tournaments he can afford to live anywhere he wants and I'm sure the Southern California weather is not a factor for him when he can fly to Arizona at the drop of a hat. I'm sure he will make the decision that is best for him and his family. That is the American Way and I wouldn't want it any other way.

  5. RichardRider

    I wish I had written this article — “Here’s what Phil Mickelson should have said”

    America continues to amaze me. I still marvel that people pay me so much money for hitting a little white ball around a golf course.

    It’s not that I don’t work hard at my craft. I do. I take nothing for granted and work my tail off every day to get better, just like millions of Americans do at their crafts. And it’s not like I didn’t take risks.

    When so many people told me I should get a ‘real’ job, I held fast to my dream, no matter how unlikely it was, just like so many entrepreneurs in America have done who have made our lives immeasurably better. And yet I still marvel at it all.

    But maybe it’s not so hard to understand. I earned $60 million dollars last year and not a single one of those dollars did I steal from anyone. Not a single one of those dollars did I weasel out of a corrupt system because I bribed — I mean, contributed to — some politician to pass a law that favors me. Not a single one of those dollars did I simply tax away from someone because I could.

    Every single dollar that came my way was voluntarily given to to me. And people are not idiots. They don’t just give away their hard-earned dollars for nothing. Every dollar they gave me was in return for something that was worth more to them than a dollar, or they wouldn’t have given it up. Like I said, I marvel at the opportunities in America. Who would have thought so many people would find so much joy in watching a guy hit a ball with stick? But they do and so I will do my best to do everything I can to be worthy of them. Isn’t that the American way?

    It breaks my heart that America is abandoning the American way of keeping government small so that individuals can become as big as their dreams. And it breaks my heart that my home state, the state I love, is chasing away so many hard-working people and wonderful businesses with their outrageously high taxes. It’s nothing less than a tragedy that the fastest growing population in America is former Californians and the fastest growing industry is former California businesses.
    What’s worse, unless we change our ways, unless we stop all of America from adopting the failing California Blue model, I fear we will no longer be talking about former Californians so much as former Americans.

  6. RichardRider

    At the golf tournament, Tiger Woods publicly admitted he moved to Florida in 1996 for tax reasons — the same reasons Mickelson is concerned about.

    But here’s the kicker: Tiger Woods left CA in 1996 because of California’s confiscatory 9.3% state income tax (a tax that kicked in at under $100K for a married couple). Today Phil Mickelson is ready to abandon the misnamed “Golden State” for the same reason — but today’s CA income tax rate above a million dollars is 43% HIGHER than when Woods left!

  7. RichardRider

    Golfer Phil Mickelson made a mistake. And thank Goodness he did. While golf in an individual sport, in this case, he took one for the team.
    Phil naively spoke out against the new higher 2013 taxes he now has to pay – announcing in passing at a press conference that he might have to make some “drastic changes” to deal with the major tax increases. The liberal press went bonkers, and much of the envious public piled on with insults and ridicule.

    Stunned, a bewildered Mickelson quickly backtracked, apologizing for speaking out on such a political issue. And he apologized again a couple days later – after intense meetings with his publicist – delivering his mea culpa with just the right combination of contriteness and joviality. All his backtracking in turn angered OTHER fans who had lauded him for speaking out in the first place.

    I’m sure Phil would like to take a Mulligan, and simply replay the last week from the beginning – saying not a word about his tax problems. Fortunately for us, he can’t. He publicized a problem with Proposition 30 that, until now, has received little consideration in the California press.

    A California resident, his total federal and state marginal tax on his earnings is now somewhere north of 50%. How far north is fiercely debated by experts and pundits. He claimed he was in the “62, 63% tax bracket.” Most experts figure he’s in “only” the 52% to 57% tax bracket. But then, it’s not important that Mickelson is not on top of the tax game – it’s only important that the tax rate is now so high that it’s prodding him to take corrective action. With the passage of Proposition 30, the 13.3% CA income tax rate makes up a hefty portion of his high marginal tax rate.
    It’s crucial to note that Phil apologized for speaking out – NOT for his views and plans concerning his tax problem. Unless he is cowed by the blowback he experienced, it’s likely he will take the most obvious step – quietly moving his family from California to Florida, where a majority of the PGA pro golfers live. But I suspect his PR gaff will cause him to delay his departure for at least a year.
    While I was disappointed in his backtracking, I fully understand why Mickelson did so. MOST of his earned revenue is NOT prize money from winning golf tournaments – his most important asset at age 42 is his likeability as a celebrity, and his subsequent selling power as an endorser of products. By speaking out on such a controversial topic (and by being portrayed as greedy for doing so), he was literally risking tens of millions of future income. Facing such a dramatic loss in earning power, I doubt many would have decided otherwise.

  8. RichardRider

    The anecdotal evidence continues to roll in — CA rich folks are seriously thinking about finally departing “Taxifornia” — for good. What is still unknown is how MANY will actually do so, and how quickly. We must wait and see to discover the answers.

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