“Far more startling, the state is eliminating the deduction retroactively–going all the back to 2008.”

◼ Crazifornia: Franchise Tax Board kills the Golden State Goose - Laer Pearce/Cal Watchdog

California’s hostility towards business, and willingness to tax it into oblivion, is storied. As State Senator Ted Gaines, R-Roseville, is quoted in my recent book, “Crazifornia“:

“I am tired of my constituents and other business owners here being treated like pinatas by regulators and politicians who smack them around until some fine or penalty falls out.”

Or, for that matter, some newly created tax liability — like the new retroactive (to 2008) tax that’s going to smack the Golden State’s golden goose upside the head. Henry Blodget explains in Business Insider:

“As a way of encouraging entrepreneurs and investors to start companies in California, the state has long offered a tax deduction for those who start, invest in, and eventually sell companies.

“This tax deduction allowed entrepreneurs and [investor] angels to exclude 50 percent of any gain on the sale of ‘Qualified Small Business’ (QSB) stock.

“California’s capital gains taxes are a high 9 percent, so the deduction reduced the capital gains rate to 4.5 percent. This encouraged the entrepreneurs to start and keep their companies in California, instead of decamping to lower-tax states.

“And, for many years, California entrepreneurs and investors have taken advantage of the deduction.

“But now the state has apparently decided that it no longer needs to encourage entrepreneurs to start and keep their companies in California.

“So it is eliminating the tax deduction.

“Far more startling, the state is eliminating the deduction retroactively–going all the back to 2008.” (Emphasis in original)

As you can imagine, those QSBs, the companies that qualified for the reduction in taxes but now suddenly don’t qualify, are not reacting positively to this news....

True to form, California is alone in its stupidity. The federal government, tone deaf as it is on the economy, realized that encouraging fast-growing businesses is a good thing and extended its QSB program.

Who could disagree with Overstreet when he concludes: ”Why in the world would any smart business person start or invest in a new California company facing that kind of penalty?”