Low taxes and regulations fuel Texas’ rise as California struggles
A number of businesses have recently moved at least some of their operations from California to Texas. Elsewhere, in early 2021, the NYSE raised the possibility of having to move if a tax on transactions is imposed. Of course, this isn’t something that is on the brink of happening tomorrow. If the NYSE ever were to move its operations, it would follow from a long and deliberative decision-making process.
Businesses move because, like every individual, they are motivated out of self-interest. There’s not inherently bad nor greedy; the same fundamental motivation is behind both employees seeking to increase wages and employers seeking to decrease costs. These are simply competing demands, as both parties strive for the best possible deal.
Did you notice the plethora of businesses that took steps to at least partially move from California to Texas in 2020? Tesla is the last company to still produce cars intended for the general market in California. HP, Apple, Oracle, have all moved or expanded operations into Texas.
California grew because it allowed innovation, and it has benefited greatly as a result. Today, overburdensome regulations and taxes are pushing companies away. Try being a property developer in San Francisco. It’s little wonder that growth in house prices in San Francisco and California as a whole have grown at a rate far exceeding the nation, even as California’s population growth has slowed.
For Texas, the outlook is promising. According to Investopedia,
An impossible housing market, high tax rates, and strict regulations have made it challenging to live, work, and do business in Silicon Valley. And now, as companies are finding success with work-from-home models during the COVID-19 pandemic, many CEOs are opting to leave California in search of lower real estate prices, better tax laws, and fewer restrictions.
An op-ed article published by Bloomberg makes the same case:
An impossible housing market, high tax rates, and strict regulations have made it challenging to live, work, and do business in Silicon Valley. And now, as companies are finding success with work-from-home models during the COVID-19 pandemic, many CEOs are opting to leave California in search of lower real estate prices, better tax laws, and fewer restrictions.
While some regulations serve a purpose, excessive regulation is certainly undesirable. A George Mason University study in 2016 found the cost of regulation in America to be 25% of GDP.
As stated, a factor encouraging businesses to move to Texas is favourable tax conditions.
There’s a desire to disproportionately tax the wealthy. Not only are excessive rates unjustified by any objective standard of what a “fair share” is, but the desire to increase taxes specifically on the wealthy seems often to be based on a perception that they do nothing with much of the income they receive.
Elon Musk’s Tesla and SpaceX come to mind. These are examples of expensive projects which tend to offer little or no revenue for a considerable amount of time after their inception. Tesla is growing more and more popular and its cars are becoming attractive to more and more of what one would call average Americans. As for SpaceX, it’s assisting NASA, aiding in research that promises to benefit civilisation as a whole.
Musk’s wealth allows him to operate such companies. The wealthy, due to their wealth, are able to invest in major new businesses and startups even when they have little or no short-term prospects of profitability and involve a very high degree of risk. The world is better off for it.
Needless to say, excessive taxation isn’t the correct path to economic growth.
Economic success isn’t such a hard formula to figure out. If you keep taxes and regulations low, keep general society safe and uphold a functioning and reliable legal system which can be trusted to enforce contracts, you’ll attract business. Texas simply practiced good economics.
As for growth itself, it benefits everyone. It’s essentially why the average American today has access to a far greater wealth of goods and services than in decades past, and better quality ones at that. With few exceptions, yes, everyone’s getting richer.
