The writer is a partner at Sequoia Capital
If you’re running a 10-year-old company that’s raised $8 billion but is losing money, has warned investors it may not have the wherewithal to pay off debt, has workers clamoring for higher wages and recently froze hiring, what are you doing? In the case of Lyft, the San Francisco-based ride-hailing company, you’re trying to set up a bailout paid for by California residents.
This year, Lyft’s management and board, taking advantage of how a handful of people can put ballot initiatives in front of California voters, have positioned their need for funds as a fanciful effort to fight climate change. . Lyft’s bailout — which involves spending $45 million of shareholder money to rally the electorate — marks the first time in California that a single company has sponsored a tax hike to its financial advantage.
Neither the board nor the management of the company have so far contributed a penny to this lobbying effort. The state, however, would be required to raise up to $5 billion a year in new taxes. Much of that would be used to provide rebates for installing electric charging stations (half of which would go to communities that Lyft depends on for drivers). It would help the company meet a state law that requires 90% of miles driven by its fleet to be in zero-emission vehicles by 2030. It would also reduce operating costs for its 300,000 drivers. short of money.
If Lyft’s tax bailout is successful, the consequences for California could be as profound as those following the 1978 passage of Proposition 13 — another statewide initiative that bypassed the legislature — which capped property tax rates. The results were abysmal, especially for schools: Over the next two decades, California fell from fifth in the nation in funding per student to 47th.
Proposition 13 also made California heavily dependent on capital gains for its tax revenue, and today the top 1% pays half of state income taxes. California already has the highest state tax (and sales tax) in the United States, and Lyft’s proposal would impose a new 1.75% tax on those earning more than $2 million. In contrast, its main state competitors – Texas and Florida – levy no state income tax. If the Lyft bailout passes, many of those who founded and built the companies that fueled California’s growth (as well as those who once would have been lured into the state) would face an effective tax hike of more than 230% in the past. 20 years.
You can imagine California Governor Gavin Newsom – who has long been outspoken about the threat of global warming, recently banning the sale of new gas-powered cars in the state by 2035 and committing $10 billion to help consumers to buy electric vehicles – would be supporting Lyft’s measure.
Quite the contrary. He understands that the 35,000 California residents (out of a population of nearly 40 million) who will be responsible for bailing out Lyft are the ones paying the state bills. He has featured in TV ads lambasting Lyft. “Don’t be fooled,” he said, “Prop 30. . . was designed by a single company to funnel state income taxes to benefit their business. . .[It]is a Trojan horse that puts corporate welfare above the fiscal welfare of our entire state.
Unfortunately, the flight from California has already started. The founders and leaders of companies such as PayPal, Airbnb, Slack, Snowflake, Block, Sun, SpaceX, Tesla and many more are already gone. Charles Schwab, the founder of the eponymous San Francisco financial services firm and once one of California’s top philanthropists, now lives in Palm Beach, Florida.
In the meantime, Governors Ron DeSantis of Florida and Greg Abbott of Texas hope Lyft’s fiscal bailout will succeed. They must think they’ve engineered a spectacularly dark trade: the forced deportation of migrants to high-tax states in exchange for the people and businesses that will shape our future.
Comments are closed.