The San Francisco Business Times featured a series of articles in mid-October chronicling the “Bay Area exodus” as California’s high housing costs, congestion, the nation’s highest marginal income tax rate, and heavy regulatory burden act to push out all but high-end tech companies.
The business journal assembled a handy list of 31 San Francisco-region companies with plans in the works to move out of state entirely or shift some headquarters operations out of the region (one was moving 60 miles inland to marginally cheaper Sacramento, while another was relocating some operations to Atlanta and Los Angeles).
Texas was named as the beneficiary of seven of the corporate relocations or expansions while Georgia was set to pick up five.
In additional to the usual issues that affect the bottom line, some business leaders cited quality-of-life issues such as dealing with human excrement in the streets and increasing confrontations with aggressive homeless people. Reports out of Los Angeles, 400 miles to the south, aren’t much better, with a growing flea-borne typhus problem arising out of mounds of trash associated with growing homeless encampments.
Core-Mark Holding Co. Inc., for example, is moving from San Francisco to Dallas next year. The Fortune 500 Company’s president and CEO citedTexas’ lower taxes and cost-of-living as well as its “really high quality of life” compared to the Bay Area.
Meanwhile, Peter Thiel, the billionaire co-founder of PayPal, is moving his venture capital firm Mithril Capital Management to Austin, Texas. An unusual factor in the move: diversity of thought. While Travis County, home to Austin, voted almost 3 to 1 for Clinton over Trump in 2016, San Francisco, Mithril’s current home, supported Clinton by more than 9 to 1, one of which was likely the iconoclastic Mr. Thiel himself.
Political policies have consequences. During my six years in the California State Assembly — four of which were as vice chairman of the Committee on Revenue and Taxation — I heard a constant refrain from big-labor lobbyists and their legislative allies that taxes mattered little when it came to corporate decisions on relocation and growth.
Of course, my colleagues on the left would then also argue in favor of movie tax credits for their Hollywood donor pals, arguing that without them, film production would move out of state.
President Trump’s historic 2017 tax cut law also raised the cost of doing business in California. While most Americans will see a net tax reduction in 2018, a small set of high income taxpayers (mostly from high tax states) will pay more in federal and state taxes while many more will see a growing gap between the lower amount of federal income taxes they might pay were they to move to a low-tax state.
This is because the tax reform bill limited the state and local tax (SALT) deduction to $10,000 per household, ending the implicit federal subsidy of high state and local tax bills.
In spite of annual U.S. Census Bureau interstate migration data that shows California consistently losing a net of residents to other states, with Texas being the number one destination, California still has a lot going for it. Compared to most nations on the Pacific Rim – including Mexico and Central America – California is still a better place than home, with lower corruption, less political risk, and greater opportunity more than making up for its higher cost-of-living.
That’s why some 1.5 million people moved into California from abroad in the five years ending in 2016, with about half of those moving in from Asia. These new arrivals more than made up for the 521,000 estimated to have left the Golden State for other parts of the U.S. In comparison, a net of 542,000 Americans moved to Texas while about 1 million people moved to Texas from abroad in the same five year period.
These migration patterns have political implications, however. Most of the people moving out of California are American citizens, many of whom vote, while few of the people moving in from other nations can legally exercise the franchise.
The last time California elected any Republicans to statewide office was in 2006. At that time, Democrats outnumbered Republicans by 6.7 million to 5.4 million registered voters, or 43 percent to 34 percent with decline-to-state and minor party voters making up the remainder. On the eve of the 2018 elections, the Democrats’ registration margin increased to almost 3.7 million voters from a margin of 1.3 million 12 years earlier. Only 24.5 percent of the state’s voters affiliate with the Republican Party.
There is some evidence that California isn’t just exporting businesses to other states, they’re also exporting Republican voters, contrary to the fears of many red state residents on the receiving end of the California exodus. Polling done by the Texas Tribune and UT Austin found that by more than 2 to 1, California expats in Texas were conservative. Matching this data up to the Census Bureau migration surveys can explain virtually all of California’s steady decline in Republican registration — they’re not dying off or reregistering to other parties so much as voting with their feet.
Sadly for California, what this likely means is a doubling down on liberal policies. For instance, California’s iconic Proposition 13 is now under serious assault by progressive interests looking to hike property taxes. The anticipation of even higher taxes will cause even more businesses to consider leaving the state, perhaps deepening California’s one-party rule.