News of Toyota’s departure from Southern California to Northern Texas should not come as a surprise to anyone. In the past several years alone, California has seen major capital flight by corporations looking for a more inviting economic environment. Heck, even Hollywood is choosing to film more and more in cities and states outside of California. Doing so allows them to take advantage of tax incentives that save these studios and production companies millions of dollars. The lure of the almighty dollar is still a strong motivator.
Anti-business governing has forced the state of California into a cautionary tale of sorts. The kind of horror story state politicians tell their successors – “whatever you do, don’t do that.” Over-regulation, complex tax structures, high taxes, and a very pro-labor environment has forced major manufacturers such as Boeing, Intel, Nissan, and now Toyota to greener pastures…literally – have you seen North Texas, or any of the southern States in which these businesses have moved? And it’s not just businesses. Sure, Silicon Valley still has a wealth of high talent labor, but with the highest state income tax in the country (and one of the overall highest costs of living), the best of the labor force is fleeing…along with their economic productivity and taxable income.
To be sure, these major corporations don’t even need to entirely stop doing business in the state. Rather, some strategies include expanding operations in other states like Arizona. In fact, Arizona has been at the forefront of these recruiting efforts, touting their friendly business environment and low cost of living. You see, Californians can say good riddance all they want to these companies – big and small –but the trickledown effect is real. Over 200 companies have left California in the past 4 years. This means less employment opportunities, less corporate tax income, less individual tax income – just overall less revenue for California. Unemployment is still over 8%, and job growth in practically every major industry is declining month-over-month.
While the tech sector skews the business numbers in the State, even still, per cap GDP in California is 5th in the nation and 8th in terms of year-over-year per cap GDP growth. We should expect better from the largest state in the country, shouldn’t we? Yes, employment growth is on the rise, but it should be – it’s growing everywhere.
California needs to take a page out of Texas’ playbook. Blame big business all you’d like, but even with a lower minimum wage and lower overall salaries, relative to California, Texans still have a much stronger purchasing power. The dollar stretches a lot further when the cost of living is so much lower. And this is directly related to the economic and business environment in each state. Tech may still buoy California, but with more States providing incentives for tech growth, that will change as well.
Any aspiring tech entrepreneur just needs to look at what Mark Zuckerberg’s success has forced upon him – he paid over $2 billion in taxes last year.
That was 4% of California’s tax revenue.
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