Also published at The FlashReport on February 3, 2012
Facebook, the company that made social networking a phenomenon around the world, announced this week that they are taking the company public.
While the value of the Facebook offering is still unknown, it is expected that the company will generate between $5 and $10 billion from the sale of public shares. Its offering is expected to be one of the largest ever for a California company, which says something given that we are the home of Silicon Valley giants like Apple and Hewlett Packard. It is also projected to be one of the largest initial public offerings ever in American history.
This is great news for the State of California and our economy.
When a California-based company makes an initial public offering, the state reaps a windfall of new capital gains taxes. To put this in context, when Google had its initial public offering in 2004, they sold 19.6 million shares for a total value of $1.67 billion. This alone resulted in capital gains earnings in the state jumping 49 percent that year. The year after Google went public, tax revenue unexpectedly grew by $7 billion.
Given the value that the company could command from potential new stockholders, Facebook could bring the state treasury one of its largest pay days ever, generating hundreds of millions of dollars in unexpected tax revenue for the state.
They may not be the only company going public this year. According to Bloomberg News, there are at least 14 other California high tech companies – including Yelp – that are considering making public offerings this year, at a value of roughly $11 billion. This too will generate new tax revenue.
Like clockwork, every time there is an unexpected tax windfall generated in California, our liberal friends in Sacramento start to dream of how they can spend this new money on new programs and bigger government. Sure enough, the news of Facebook going public has the majority party thinking that Christmas is coming twice this year.
Republicans think it is important to take a step back and act responsibly when it comes to spending whatever additional tax revenue the state may receive from Facebook going public.
In years past, the temptation of the Legislature has been to spend through all this new money and then some, irresponsibly using one-time money to pay for on-going spending and costly new programs that put our state in the budget hole we are facing today. Given California’s chronic, ongoing budget problems, this is a risk we cannot afford to take.
We believe the most prudent course for the Legislature to take is to prioritize the use of tax revenue generated by Facebook and any other one-time windfall this year to protect our public schools from Governor Brown’s proposed trigger cuts and pay down the state’s budgetary debts. 90 percent of these cuts are targeted at K-12 education. By using this revenue to protect our classrooms from the Democrats’ irresponsible education cuts and getting our state on sounder fiscal ground, it will become clear to the voters that the Governor’s massive tax increase is unnecessary.
The success of companies like Google, Facebook, Yelp and others shows what Republicans have been talking about all along. The best way to generate the revenue we desire to fund education and public safety is not by raising taxes, but by growing the economy, creating jobs and, yes, generating wealth for Californians. It proves yet again that Californians don’t have to pay Governor Brown’s proposed $31 billion tax increase to protect funding for our schools.
We need to encourage more Googles and Facebooks to set up shop in California. To achieve this goal, private sector job creation must continue to be the Legislature’s focus. Now more than ever, the Legislature must enact reforms that make California an attractive place for today’s companies to expand and for companies of the future to invest and create jobs and generate new tax revenue for the state.