Several decades after fuelling the global internet revolution from California, Silicon Valley has finally decided to shift base. The Silicon Valley companies including Hewlett Packard Enterprise, Oracle Corp. and Elon Musk’s Tesla don’t like the deteriorating business climate in the Democrat-ruled California. They have decided to pack up and move to Texas- a Republican stronghold.
High business costs, growing living costs, exorbitant and overbearing environmental fee and steep taxes in California, are together instigating the flight of some of the biggest American tech companies to Texas. The Republican stronghold of Texas offers what the Silicon Valley companies want- lower taxes and a much more business-friendly environment, along with an affordable cost of living for the employees.
The latest addition to the long list of Silicon Valley companies leaving California is the world’s second-largest software maker- Oracle. The tech company will be moving from Redwood City in California to Austin in Texas.
Erik Hallgrimson, Vice Chairman with brokerage Cushman & Wakefield in Silicon Valley commented that Oracle’s decision shows how taxes and public policy can impact corporate decision making.
In a more symbolic move, Hewlett Packard or HP Enterprise- one of the earliest Silicon Valley companies too has decided to shift base from California and move to Texas. HP is literally the birthplace of Silicon Valley. The private HP Garage museum in Palo Alto, California, even has a plaque declaring, “This garage is the birthplace of the world’s first high-technology region, Silicon Valley.”
And then, Tesla, the world’s leading electric vehicle maker, has only added to the exodus of companies snubbing California and moving to Texas. The founder of the e-vehicle giant, Elon Musk even declared that California had “too much influence in the world”, but now its power is waning. He told the Wall Street Journal, “The two biggest things that I got going on right now are the Starship development in South Texas … and then the big new US factory for Tesla.”
Musk also said that living in California “wasn’t necessarily a great use of my time.”
So, who is to blame for the Silicon Valley exodus in California? It seems that the obsession of the Democrats with high personal income taxes, corporate taxes and environmental vigilantism, has caused the flight of American tech companies out of California.
California imposes a 13.3% tax on the income of top earners. This is one of the highest-rated in the US. On the other hand, Texas is only one of the seven American states which don’t have an income tax.
But then it is not only the wealthiest Americans who are leaving California and taking their companies along with them to Texas.
Even the upper-middle class is shifting to Texas and between 2017 and 2018, Texas ranked second next only to Florida when it comes to the inward movement of upper-middle-class population.
California, on the other hand, is facing a net loss of upper-middle-class population. The difference in housing prices explains this phenomenon. A single-family home in Texas costs $242,000, but a similar house in California costs $700,000.
The Upper-middle-class population carries much of the talent that tech companies want. As the upper-middle-class moves out of California, the state’s talent pool too might be getting diminished. So, tech companies shift base to Texas to tap into the talent pool that Texas boasts of.
Also, California is one of the most expensive locations in the US to operate a business. It ranked second last in the Tax Foundation’s State Business Tax Climate Index for 2021. Texas, on the other hand, secured a decent 11th rank on the same index.
Texas’ growth and California’s failure to retain the Silicon Valley show who cares about American growth and is ready to take the American businesses forward. The Silicon Valley is disillusioned by the Democrats and has thus decided to find refuge in the much more friendly state of Texas.