The impact of COVID-19 on the economy continues to be calculated, as recent reports from the Internal Revenue Service show that California has lost over $1 trillion in managed assets since 2020, according to an analysis by Bloomberg News. This loss for California comes as a result of businesses including Wall Street banks and big tech firms such as Oracle, HP Enterprise, Vrbo, Chevron, Charles Schwab and more moving to other states – especially Texas.
Dr. Natalie Winter, professor of business administration, said that rising costs are an important factor businesses take into consideration.
“The most common reason that businesses take the California exit tends to be to save money. California’s tax code is not considered to be business-friendly, and in addition, there are high costs associated with running a business in CA, including a high minimum wage. All these costs add up. Of course, many observers note that the move was accelerated by the pandemic when many employees did work remotely. If businesses can have the same access to a talent pool (due to remote work) but can be headquartered in a more cost-friendly state, this is a win-win for the enterprise,” Winter said.
Texas (a popular destination for many of the migrated tech companies) has no income tax. In comparison, California’s income tax rate ranges from 1% up to 13%, according to taxfoundation.com.
Mia Pollock, sophomore marketing major, agreed that the pandemic played a role in our economy.
“California is very expensive on its own. It is hard to live here without a strong income, therefore, to run a business out here is definitely difficult. Real estate, rent, and living expenses are high, so our minimum wage is high. Inflation is a main contributor to these expensive prices. And the pandemic only added to this. People weren’t working, so they cannot afford to live here,” Pollock said.
Lexzy Foroozandeh, junior business major, suggested that while rising costs can be a motivator, moving out of the state is not the solution.
“Most likely businesses are moving because as of now, other states are cheaper. However, if businesses keep migrating over to places like Texas and Florida, they’re going to find nearly the same issue as we have in California of insane pricing,” Foroozandeh said.
Foroozandeh added that she believes the loss in California’s assets is only temporary.
“California has a huge population and much of the younger generation, especially millennials, are trying to create up-and-coming businesses. There’s always one of these businesses that stands out and provides more benefits than the others and that’s how a mainstream business is born. It’s a long-term process,” Foroozandeh said.
Winter also sees hope on the horizon for California.
“It should be noted that there are some indications that the exit of residents is slowing (and I suspect that the exit of businesses will slow too). Many organizations are finding that there is some benefit of employees being in the office, at least some of the time, which means they need to be located where they have access to the talent that they need for their business. If less people exit the state, fewer businesses will as well,” Winter said.
Winter used Tesla as an example of a business that has already moved back. Tesla moved their headquarters to Texas in Dec. of 2021 but came back in Feb. of 2023, according to Forbes.
“Tesla was drawn back to California due to government incentives, but I am sure there is a tradeoff between how much businesses are incentivized and whether the additional tax revenue generated is worth it,” Winter said.
There are plenty of other reasons California’s economy will be quick to recover, Foroozandeh pointed out, such as the draw of tourism.
“We definitely make a lot of our income in California from anything in regards to the motion picture [industry]. However, there is day-to-day stuff that California provides, [like] a lot of trade services alongside transportation. Not to mention, our theme parks bring in immense amounts of income. Also, California is an amazing tourist state so a lot of businesses win from that alone, even small ones,” Foroozandeh said.
