Business, employees and money are being taken away: why rich people leave California

Millionaires and billionaires are fleeing California en masse and taking their companies with them, writes Yahoo.

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Many high-profile Californians and companies have left and/or announced their retirement from the state of California—mostly from the San Francisco Bay Area. And they are heading to Texas, Florida and Colorado. These include Elon Musk and Tesla, Larry Ellison and Oracle, Palantir and co-founder Joe Lonsdale, Hewlett-Packard Enterprises and Charles Schwab, to name just a few of the most important players in the market. Other big names and businesses are said to be on the way.

In addition to strong hitters, a number of other low-profile but key players have left the state, such as the influential computer scientist from Stanford University David Cheriton, PeopleSoft billionaire and Workday co-founder David Duffield, and media personality Joe Rogan. Ordinary people from technology and other lines of work have also moved.

Why are they leaving? This has been reported many times in the media: taxes, onerous regulations, high wages, rent, insurance and real estate costs, as well as alleged political correctness, an alleged lack of work ethic, the problem of homelessness in San Francisco, wildfires, and finally the prospect of even higher taxes. ...

In addition, telecommuting during COVID-19 has demonstrated that anyone with a computer and phone can do it from anywhere. The pandemic has coincided with and accelerated the explosion in the popularity of cloud services, and has also fueled the adoption of products and tools such as Zoom, Slack, and Clubhouse. In a sense, Silicon Valley has created technology that eliminates itself.

All of this prompted Bay Area residents to pack their bodegas and their $ 10 hand-painted Italian bicycles and hit the road. But is this drive to leave the Golden State really new, or is it just another chapter in a much older story?

“I just left last month,” says Jim Davidson, co-founder and former CEO of giant tech company Silver Lake Partners, which moved to Montana. “A lot of people think this time is different. I don’t know if this is true, but it seems like it.”

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Disillusionment and apocalyptic visions are not something new or peculiar to the residents of the state. California and San Francisco in particular have always been quirky and challenging, but also wonderful and inspiring (maybe the only difference is that there's more money there now).

There is a group of people who downplay the significance of this recent exodus, arguing that there are no hard numbers to measure the extent or significance of those leaving the state.

“I think it's too early to know, and anyone who claims to know for sure is doing so purely on the basis of rumors,” said Molly Turner, a professor at the School of Business at the University of California, Berkeley. “My gut tells me it's mostly a couple of loud people who leave and throw a fit on the way out.” I don't think it will have a significant impact on the Bay Area as a global hub for the tech industry."

“Typically in years past it was about 50% outbound, 50% inbound,” says Steve Komor, who has co-owned King Relocation Services in Los Angeles since 1988. “In 2020, outgoing traffic was 59%, incoming traffic was 41%.”

Some have left California for decades. 3Com founder, legendary technologist and "father of Ethernet" Bob Metcalfe left Silicon Valley in the early 1990s and ended up in Maine. Jim Clark, founder of Silicon Graphics and co-founder of Netscape, left the company in 1999.

“I benefited enormously from the AOL Time Warner merger [AOL bought Netscape],” Clark says. — I went to Florida, bought a house and started selling my shares." Then Clark bought one of the largest houses in Palm Beach. Then he got married and returned to California for a short time - only to leave the state again and move to New York. Will Jim Clark ever return to California again?

“No,” he says. -There's climate change, plus Facebook, Apple and Google have made everything so expensive that the real estate situation is out of control. And I’m a democrat, but the democrats there don’t fully understand what’s happening. I love New York, but I miss talking about tech in the Bay Area."

Another point: many of the companies leaving these days are not quite top-notch. These are mature businesses that grow by raising prices, cutting costs, outsourcing or buying smaller companies, rather than innovation.

“The Bay Area still has Google, Apple, Facebook, Salesforce, Genentech, Airbnb, Twilio, etc.,” says Berkeley's Turner. “The world’s biggest tech companies are still here and expanding.”

Dee Dee Myers, a former press secretary for President Bill Clinton, hired in December by Gavin Newsom's head of business and economic development, agrees that the outcome is exaggerated, but with some caveats.

“Every few years someone writes, ‘California is over,’ ‘Silicon Valley is over,’ ‘the tech boom is over,’” she says. - It always turns out to be untrue. There are too many large developments here that make this a great place to live and do business.”

But she adds: “The cost of living is high. We need to keep trying to solve the problems with our incredible assets. We cannot rest on our laurels. "

This is for sure because the above detailed list of problems is very real. A book could be written about each of them: fires, homelessness, and what people consider political correctness (“You heard that teachers are teaching our children that we are evil,” said one Silicon Valley executive).

California has incredibly high taxes, with the highest marginal tax rate in the country at 13,3% for income over $1 million. So it's no surprise that it's estimated that California's top 1% already pays the majority of state income tax revenue, about 46%. On the other hand, the law limits property taxes: “Annual increases in the value of locally assessed property are capped at less than the rate of inflation or 2%, and the tax rate cannot exceed 1% of the assessed value of the property,” auditing firm KPMG said.

In addition, other taxes are proposed, such as a corporate tax that would be used to fund solutions to homelessness. And there's the so-called California Hotel Tax, which will subject anyone who stays in the state for more than 60 days a year for the next decade (named after a line from the Eagles song of the same name: "You can vacate your room whenever you want." time, but you'll never be able to get away.") And now the new law calls for raising the top rate to 16,8% and adding a 0,4% wealth tax (which, if passed nationwide, would apply to about 30 residents and will attract $400 billion). Thanks to Donald Trump's tax reform, which targeted high-tax blue states (read California and New York), state and local tax deductions are capped at $7,5.

Myers says talk of new taxes is just talk.

“The governor has no intention of raising personal income rates or imposing any kind of wealth tax,” she says. “He’s not interested in raising corporate taxes.” It will not happen".

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For those Californians looking to relocate to avoid paying taxes, it's best to really consider it. Tax experts point to a long checklist to prove you no longer live in California, including which state issues your driver's license and where your dentist is located.

“I think every responsible CEO should consider moving his company out of California,” software company CEO Tom Siebel recently told Bloomberg. “My family is here and I love California, so for now we’re here.” But some of the greatest job creators in history are leaving the state and taking their employees with them.”

What needs to be done to stop the exodus?

“You need a business-friendly environment with a reasonable tax structure,” Siebel said.

Conclusion: Yes, a few more tech tycoons and their companies will leave California. Best of all, this will lead to the distribution of high-tech jobs in more cities across the country. Austin will become a major tech hub, and Seattle will, but the Bay Area will remain the nation's tech hub. As Dee Dee Myers says, there is too much going on for it to end.

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