The California Exodus
In 2021, the one-time hub of innovation and enterprise, the progressive state of California, is experiencing a sudden exodus from its high-powered ranks. While the pandemic has certainly played a role, the mass departure of celebrities, executives, and tech-magnates, like Elon Musk, has sparked discussions of a larger shift in trends.
With many tech-giants offering remote positions, employees have little incentive to stay in the lukewarm Californian climate. This factor, combined with the mounting economic costs of living in the state, have created a steady exodus. Estimates suggest that nearly 600,000 Californians retired between 2007 and 2018.
The impact of this exodus is resonating on almost all levels. Many Silicon Valley billionaires, including those of tech-magnate Elon Musk, are moving to states with significantly lower taxes and maintenance costs. These states, such as Texas, are now accusing California of becoming a ‘hell hole’.
This crippling factor has hit the state in full force, with mounting budgetary woes and a plunge in enthusiasm for some of the state’s most successful initiatives. By one estimate, California has shed an estimated $13 billion in taxes.
However, before the pandemic, the mass departures had already kicked into gear. In 2019, Elon Musk’s Tesla company had already announced their moves away from California, citing high taxes and a weak economic climate. The Tesla headquarters have since moved to Texas.
Besides taxes, California’s severe environmental regulations have also been a driving factor in the departure of some high-ranking executives. Many have categorized the state’s environmental regulations as ‘too heavy-handed’ and lacking in appeasement.
Finally, although the political climate in California has been historically favorable to the tech-elite, sentiment has shifted. With a new administration entering office in 2021, some have questioned the motives of Musk and other actor-CEOs, who have made it clear that their reasons for departure had nothing to do with politics.
Economic Costs
With the continued disregard for cost containment and growing technological advances, it is estimated that Californian taxes may rise to over 13%. This would be a record-breaking high, sparking much alarm in the stock markets. Some analysts have noted that the initial shock of such surprising policy changes may lead to further departures of the tech-elite.
Apart from taxation and cost of living, the state’s approach towards employee wages has also caused unease amongst some of California’s most powerful figures. With an hourly wage at $11, many have grown suspicious as to the state’s motives in dealing with high-wealth individuals. Such wage stagnation has caused tension amongst some, fuelling arguments of a systemic bias towards lower-income Californians.
Compounding the problem, is the fact that even those who have left California, continue to foot bills which remain the same, regardless of their location. Such problems have been brought to light, sparking frustration amongst thousands, who have left California but remain financially entangled to the Golden State.
Finally, in the face of ongoing hikes in housing prices, and decreased gas emissions standards, combined with increasing wealth inequality, technocrats and celebrities alike have cited California’s ‘unfriendly business regulations’ as proof of systemic racism.
Remote Working
As the pandemic continues to snarl ever closer to our lives, remote working has catalysed the technocrat exodus from California. It has long been an obstacle to those with higher incomes, burdening them to commute long hours to work, whilst accruing debt from the cost of living.
As such, states like Texas, have capitalized on the shifting winds. With many tech-giants offering remote positions, Texas has created policies that promote the state as a key centre for innovation and tech-wise growth. Starting at a mere 6.25%, Texas income tax rates are a dream compared to California´s.
At the same time, Texas has invested heavily in its infrastructure and public service offerings. It is not surprising then, that most of the companies in the S&P 500 companies have headquarters in the state, many of which attract remote workers, especially from California.
Of course, not even Texas can compete with the cost of living. With an average rent cost in Dallas 12% lower than its Californian counterpart, it is easy for those caught between the two locations, to opt for the cheaper choice.
However, even Texas cannot offer the same glamor and economic opportunities as California. With fewer celebrities, and most of its income coming from oil and gas, Texas cannot yet compete with Silicon Valley in terms of business opportunities.
Regulatory Changes
It would be disingenuous not to include another significant factor in the technocrat exodus from California; its stringent policies. As the push for green initiatives grows, California has stepped up the enforcement of its emissions regulations, taxing those who do not comply.
This is in direct opposition to states like Texas, who support its carbon producing industries, providing incentives for renewable energy projects to keep overall production levels up. As such, many companies and state departments have opted to move from California to one of the many ‘business-friendly’ states in the US.
Moreover, some of the more punitive fiscal decisions taken by the Californian government in 2020, have also served to fuel further departures. For example, many have been shocked by the decision to cap CEO salaries, a move which has failed to achieve the desired effect, as many CEOs have simply relocated.
The decision has certainly sown an air of hesitation in wealth-driven Californians, with many tech giants encouraging employees to become more financially independent. With many jobs being conducted remotely, the need to maintain close proximity to the state has become a minor factor.
Repercussions
Recent developments in the trend of the wealthy exiting California has led to the state formulating a plan to entice companies and celebrities back. In the face of mounting budget deficits and a growing sense of loss amongst some, California has set its sights on reform.
Firstly, the state has pushed for significant tax breaks and regulatory easing measures. This includes a recent plan to introduce 80 tax incentives, totaling at least $100 million in tax credits for California-based businesses.
In addition, the California Alternative Energy and Advanced Transportation Financing Authority has also re-aligned the use of public dollars in the state, focusing on renewable energy projects and infrastructure.
However, the rehabilitation of California’s reputation as a business center will not come easy. The air of apprehension amongst some of its heavy-hitting members has already caused sufficient economic damage, leading to at least one proposal to divide the state entirely.
This is a momentous task in its own right but one which seeks to restore order and faith in the Californian investment environment.
Income Impacts
At the heart of this dispute lies the growingly unequal distribution of wealth among California households. With the very rich often exempt from the burdens of taxation and soaring residential costs, the middle class have been left with little financial assistance or protection.
As such, whilst there is an ongoing separation between millionaires, who often move for tax incentives alone, those of a more modest income, often move with an eye towards improving their financial prospects. Such prospects can be found in states with lower taxes and real estate prices.
Unsurprisingly, this trend of leaving California has been mostly concentrated amongst those over the age of 17, who are usually more prone to relocate and establish themselves in more financially favorable places. This has led to a rapid increase in the number of business migrants leaving the state, making overall income a major contributor to the exodus.
California is also now home to many ‘social businesses,’ that are emerging to assist the exodus population. Unfortunately, these businesses often require individuals to pay a fee to find the right taxes and regulations in a particular state.
Finally, the recent news of Tesla relocating to Texas, has not only sparked a renewed interest in state based businesses, but is also contributing to a large-scale financial shift to the state.
Cultural Motivators
On top of the financial and economic motivations behind Elon Musk’s and others’ departures from California, cultural factors also play an important role. With strong and often divergent opinions on hot-button topics, many elitists are leaving what some have described as, a ‘hive of anger and closed-mindedness’ to seek out the more tolerant and accepting political and social environments found in Texas and other states.
On the opposite end, those who are of minority backgrounds and have previously been included in the hostile Californian culture, now have the opportunity to live in states that are safe and more welcoming.
At the same time, the world of entertainment and the fashion industry, have long been a staple of California’s newest class of wealthy and fashionable citizens. With the addition of Elon Musk as a trend-setter, there is a surge in interest for the Texan lifestyle, especially among the younger and more willing of population.
This is further enhanced by powerful media networks and celebrities, who have taken to endorsing Texas culture, creating an atmosphere of trust and admiration. Such a new sophisticated lifestyle is eagerly making its way into the Californian ecosystem, causing an ever increasing need to pursue the more open and tolerant Texan culture.
Elon Musk’s Decision
In 2021, Elon Musk’s decision to move Texas has re-ignited the discussion of wealth-driven migration. In the face of rising taxes, living costs and unfriendly regulations, many executives are choosing to depart California, fuelling a worrisome trend.
Tied with the cultural ramifications of official stances on key topics, many of Silicon Valley’s power players have stepped away from the paradise it once was. With Elon Musk at the vanguard of this exodus, it is clear that his reasons for moving were many, both moral and financial in nature.
Ultimately, both Californian officials and representatives from other states, must recognize the fragility of the economy, and respond accordingly. With careful consideration and flexibility, the state can well and truly prevent the further exodus of its high-powered executives.
