You know things are bad when even Silicon Valley companies leave California.
This week, Oracle CEO Larry Ellison joined the growing list of Silicon Valley CEOs and tech companies to leave the state fleeing high taxes and regulations.
Take a look at these recent high-profile departures:
- Oracle is moving its headquarters from Redwood City to Austin.
- Tesla CEO Elon Musk left California for Texas.
- Hewlett-Packard Enterprise is moving its headquarters from San Jose to Houston.
- Tanium, a cybersecurity firm, left Silicon Valley for the Seattle suburbs.
- Splunk Inc. CEO Doug Merritt moved to the Austin area.
- Palantir, a data analysis company, moved headquarters from Palo Alto to Denver.
Tech industry analysts are downplaying this migration. They claim that Silicon Valley will always be a tech hub and that the companies or personalities leaving tend to be more conservative. If you read between the lines, they are admitting that taxes are high, but that liberal Silicon Valley companies are willing to stomach them.
This misses two important points.
First, what starts as a drip can snowball. Other tech companies that have been mulling headquarter relocations now have more cover to do so. If major firms like Oracle, HP, and Tesla are willing to make the move, certainly others will too. Even if these companies maintain satellite offices in California, which they are likely to do, the shrinking tax base may put greater pressure on remaining companies to make up the difference.
Second, and perhaps most importantly, the pandemic has opened the floodgates to remote work even for an industry that is built around telework. High-skilled employees no longer need to compete for high-priced housing around tech hubs which inflates housing bubbles. They are moving to other states that offer more acreage and square footage for lower prices. Theoretically, that should mean housing prices in and around pricey Silicon Valley will fall, but not fast enough for those lower-income workers who cannot work remotely.
If there is a downside for these business-friendly, lower-tax states it is that they are attracting voters who may carry with them some of the liberal policies they are fleeing.
High-income taxes and onerous regulations including labor policies will continue to put pressure on California companies and workers in ways that will drive them away.
Lawmakers have a choice: dig in deeper or change course. Lowering taxes and relaxing regulations will make the state attractive for high-earners to remain who fund the programs and services that benefit residents of all tax brackets. If they don’t, they will continue to bleed CEOs and citizens.