Major companies from California’s tech Silicon Valley, depart to Texas for their new global headquarters. Along with Elon Musk’s SpaceX and Tesla, Hewlett Packard Enterprise and Oracle will also be based in Texas.
The Tech exodus from California has been a long time coming as businesses have found it increasingly difficult to turn profits due to regulations and high taxes. According to CNBC metrics, the average income tax rate in California is 53.8% and at 13.3%, California has the top rank in marginal tax across the nation.
Katie Shoolov CNBC reinforces, “Where some see as progressive legislation others see costly for business.”
Not only making it hard for big business to stay but for the workers as well. The cost of living in California has only been rising with job growth decreasing. Leaving Californians an inflated housing market with less of an incentive to stay. 650,000 people left the state in 2019 and another 135,400 the following year; 2020.
A study from Wealthfront, an investment management firm that provides robo-advisor services, found when it surveyed 2,700 bay area resident workers showed, 2 out of every 3 residents said they would move away from the bay area, if they could work from home. This was done with the caveat of the workers facing a possible pay decrease if choosing to work from home.
“Housing is impossible, we are 3 or 4 million units behind…because of the rate of living you [would] have to pay someone $150,000 a year. You don’t need to pay someone that type of salary in Texas.” Larr Getson political analyst San Jose State.
Without the high cost of living and progressive tax legislation, companies are able to create value for shareholders, lower wages, and generate revenue more efficiently in Texas. While Texas measures in the top three of States to do business in by tax structure, California is listed at 50th by the Tax Foundation. From 2008-2019, 18,000 companies have fled the state, mostly to Texas. 1,800 in 2016 alone.
Texas Governor Greg Abott touted his state welcoming the incoming tech giants, “To open in 2022 with lower taxes, high quality life, top notch workforce, and tier one universities creating an environment where companies like HPE can flourish.”
Tech analyst Tim Bajarin says when these companies leave the revenue could be a “bigger blow as here HP represents a pioneer helping to create Silicon Valley.”
Also warned by Lee Ohanian, senior fellow Hoover Institute, Professor of economics at UCLA, “This could change the whole nature of the state, how many tax dollars go into Sacramento.”
As the domino effect continues, one major company may not hurt California’s budget but the fear is a fleet of them just might. California has the 5th largest economy in the world and other tech staples like Apple, Facebook, and Google aren’t going anywhere soon.
Larr Getson “Google, Apple they are doing so well that the last thing they have to think about is moving. It is very much in their interest to stay here and get the latest on what is going on and be promoted by these beautiful minds at Stanford and at Cal.”
Peter Leroe Munoz Tech analyst reminds,“This is not an end to Silicon Valley, this is the move of the global headquarters. Where is the innovation and intellectual power happening.They have not left yet and will continue to employ people, It doesn’t matter where the CEO is.”
HPE, Oracle, and Tesla have said they are keeping the campuses in silicon valley with no layoffs.
The remote success of workers during the pandemic is the catalyst for companies who wanted a move out of California.
“HP and many others are sending the signal… Silicon Valley is wherever you want to be.” Jared Walczak VP state projects Tax Foundation.
Still considering the outcome of the exodus, will California legislation draw back or will they continue on the same agenda?
Barry Boone CEO of The Greater Sac Council pleads, “We are risking Californians’ economic future… legislators need to signal to the companies on the fence.”