Why are California businesses fleeing the once-Golden State in droves? Several articles this week answer that quite clearly.
“These exits negatively impact the state and particularly the local communities that lose these headquarters. Employees also leave, reducing demand within their former communities and reducing economic vibrancy. Jobs are not the only loss. There is also the loss of corporate income tax revenues, business property taxes, rents to property owners, payments to contractors, and fees to companies in the travel industry such as hotels and rental car companies,” Joseph Vranich and Lee E. Ohanian, reported in a study published by the Hoover Institution at Stanford in 2022.
The state’s population also dropped by more than 500,000 people between April 2020 and July 2022, with the number of residents leaving surpassing those moving in by nearly 700,000, the Globe reported in February.
Economist Art Laffer and Chapman Economics Professor James Doti lay out the numbers at the OC Register, and rightly declare that Gov. “Newsom doesn’t appear to see is the deleterious long-term effects of a highly progressive tax system. Case in point: The ‘one-percenters’ who pay 50% of the tax are voting with their feet by leaving California in droves.”
They explain that the ten states with the lowest income taxes including Florida and Texas, gained a cumulative net inflow from all Adjusted Gross Income (AGI) classes of $391 billion from California during the entire 2018 to 2021 period. Note that 2018 was the final year of Democrat Governor Jerry Brown. Gov. Newsom ran for governor in 2018 and was elected. He took office January of 2019, so the 2019-2021 belongs to Gov. Gavin Newsom.
“The 10 states that ranked the highest in income taxes — California, New York and New Jersey are in this group — lost a cumulative net inflow in AGI of $391 billion. The fact that the 10 states with the lowest income taxes gained in AGI the same amount as the loss in AGI for the 10 states with the highest income taxes is not a coincidence.”
“We find that the number of companies relocating their headquarters out of California in 2021 occurred at twice the rate of 2020. Our findings show that 352 companies moved their headquarters to other states just in the period from January 1, 2018, through December 31, 2021, based on either the date of the announcement or the date of documentation with the state, whichever came first.”
“Every month in 2021, twice as many companies relocated their headquarters as in the prior year. The monthly average for 2021 also significantly exceeds the monthly averages for 2018 and 2019. California lost both very large companies, including eleven Fortune 1,000 companies between 2018-21, and small, rapidly growing companies with the potential to become transformational. From this perspective, California is not only losing current leading businesses, but potential future leading businesses as well.”
Here are the company departures by year:
Where did these companies go?
Most went to Texas. Here’s why:
“Texas offers a combination of unique competitive business advantages that no other state can claim: a business-friendly climate—with no corporate or personal income tax—along with a highly skilled and diverse workforce, easy access to global markets, robust infrastructure and a reasonable regulatory environment,” Texas Governor Greg Abbott said when he recently announced that another major California business was moving to Texas. “California-based Ruiz Foods is moving its corporate HQ to Frisco,” he said. “With an unrivaled business climate and skilled, diverse workforce, Texas is America’s #1 economic destination.”
Buildremote.co reported: There were 61 companies which left California between 2020 – April 2023 with more than 100 employees. They’ve moved to 19 different states. Of those states, here are the biggest beneficiaries:
Texas: 27 (44%)
Arizona: 5 (8%)
Colorado: 4 (7%)
North Carolina: 4 (7%)
Florida: 3 (5%)
Tennessee: 3 (5%)
Ohio: 2 (3%)
Multiple locations: 2
11 states: 1
Economists Laffer and Doti concluded: “Given the clear evidence of people moving from states with high-income tax rates to those with lower rates, especially those with higher AGIs, Newsom might find that lowering tax rates results in higher rather than lower tax revenues. The Laffer Curve is likely to be even more relevant for states than nations. It’s a lot easier crossing state rather than national boundaries.”
Numbers don’t lie, but Gov. Newsom does.
No one is singing “California Here I Come” anymore.