US Politics Mega-thread - Page 3925

They’re called unicorns, though they’re a little less rare than that.

That’s what Wall Street calls private start-up companies whose investors value them at $1 billion or more. Best-known examples include such companies as Uber, Airbnb, Snapchat and Pinterest.

Policy Matters Ohio took a look at where these companies are located, to see if state income taxes played a role (see graphic).

By far the largest number – a whopping 55 of the 87 U.S.-based companies on a list compiled by the Wall Street Journal in April – are located in California. That state happens to have by far the highest top income-tax rate in the country, at 13.3 percent. Another 10 are in New York State, whose top rate of 8.82 percent ranks 6th highest in the nation, according to the Federation of Tax Administrators. A grand total of five unicorns are based in states without income taxes (Florida, Washington and Texas).

Clearly, income taxes aren’t an impediment to these high flyers.

Of course, one should hardly expect them to be, given that young, fast-growing companies don’t typically make a lot of money. For a variety of reasons, as experts at the Center on Budget and Policy Priorities have noted, cutting taxes is no prescription for economic vitality. In fact, it may stunt growth by reducing investments in education, infrastructure and public services, undercutting efforts to develop a trained workforce and offer a high quality of life.

Some of these firms will never meet their investors’ high expectations and will instead fizzle out. The valuations mark just one point in time; already, some of them have run into trouble. Others may be pursuing business strategies that are, at the least, controversial. And of course, a lot more goes into regional economic success than where these high-profile businesses happen to establish themselves.

However, their locations are one more sign that arguments for lower income taxes may sound simple and convincing, but have little basis in fact.

On June 02 2016 23:25 farvacola wrote:
That begs the question though as to why VC money flourished and flourishes in one of the highest tax states in the nation. Though there a huge host of variables outside the tax equation, to be sure, the concentration of capital relative to tax rates casts a lot of doubt on conservative tax narratives. And before someone says it, yes, Georgia and Texas are exceptions to the rule, but the nature of the work that has attracted capital interest tells the tale vis a vie the incredibly cheap cost of labor in both states.

Silicon Valley's ties to the government are decades old. Back in the 1980s, the valley's biggest employer was Sunnyvale's Lockheed Missiles and Space, which developed weapons and spy satellites for the Defense Department. The Internet itself started as a defense research project. And military contracts helped support the famed SRI think tank in Menlo Park, where researchers have developed and in some cases spun off pioneering technology used in robotics, mapping and the voice-recognition software that powers Apple's (AAPL) Siri personal assistant.

Today, the CIA has its own venture capital fund, In-Q-Tel, to help finance promising tech startups. Software-makers such as Palo Alto's Palantir Technologies sell sophisticated programs that law enforcement and intelligence agencies use to analyze vast amounts of data. Mainline companies such as Cisco Systems (CSCO), Oracle (ORCL) and Hewlett-Packard (HPQ) have multimillion-dollar contracts to supply computer hardware and tech services to the military and other government offices.

Elizabeth Holmes, the founder of the blood testing company Theranos, was a rare breed, something more rare than even the Silicon Valley unicorn she created: a self-made female billionaire. Forbes, the business publication that has made a franchise of cataloging the rich, had put Ms. Holmes on the top of its list last year of America’s richest self-made women.

The magazine’s new estimated tally of her wealth? It went from $4.5 billion to $0.

Ms. Holmes’s unusual status, as a young woman who created and controlled a company seemingly valued at about $9 billion, captivated the media: She graced countless magazine covers, including T: The New York Times Style Magazine. Theranos, she said, would revolutionize the lab industry by offering blood tests from a single finger prick at a fraction of the cost of traditional testing.

But over the last year, Theranos became the subject of a series of hard-hitting Wall Street Journal articles and intense regulatory scrutiny from an array of federal agencies.

The media is now mesmerized by Ms. Holmes’s fall. Truth be told, the half of the $9 billion valuation ascribed to Theranos and previously listed as Ms. Holmes’s wealth was nothing more than an estimate based on investors’ best guesses. Taking into account all the controversy and uncertainty surrounding the value of the company’s top-secret technology, Forbes is now guessing that the company is worth more like $800 million. While Ms. Holmes still owns at least half of the company, much of that value would be tied up with outside investors.

But, as an article in Forbes on Wednesday about Ms. Holmes is quick to acknowledge, no one really knows. Theranos has not let anyone really kick the tires. Ms. Holmes, 32, who has repeatedly vowed to reveal all, is now expected to present some data to the public in August at the annual meeting of the AACC, formerly the American Association for Clinical Chemistry. Even then, it may be impossible to come up with a better estimate of what her company is worth.

Not surprisingly, Theranos refused to shed any light on the matter, except to dispute Forbes’s analysis.

“As a privately held company, we declined to share confidential information with Forbes,” Brooke Buchanan, a company spokeswoman, said in an emailed statement. “As a result, the article was based exclusively on speculation and press reports.”

On June 02 2016 23:57 farvacola wrote:
Even if the success of VC in California can be chalked up almost entirely to historical fortune and a few key investment decisions, it still runs counter to the notion that tax-and-spend states chase away business. For a good example of this phenomena in action outside the likely black swan success of California, just compare Wisconsin with Minnesota.

On June 02 2016 23:54 xDaunt wrote:

Yeah, basically this. I know a lot of people in the tech and VC worlds, and have done some work in it for my clients. California is uniquely set up resource-wise for people seeking out VC investment. And the reason why the money is there is because of the tech boom, which occurred in California because, when the tech boom started, California was the premier low cost alternative to older parts of the country.

And the other thing to keep in mind is that high taxes and cost of living concerns aren't necessarily the only concerns of people. There are other components to quality of life, all of which are going to be valued differently by people. California has a lot of things going for it that offset its ridiculously high tax burdens and cost of living. But if you ask people who are what they think about the taxes and costs of living, they certainly aren't happy with it.