Following an exodus of at least $375 billion worth of businesses from California in the last two years, Democratic governor Gavin Newsom claimed "there's literally no better place to do business" than the Golden State.
Newsom—who has faced criticism over job-killing labor laws and stringent coronavirus lockdowns—fired back during his Tuesday evening State of the State address. The Democrat touted California's "special mix of audacity, human capital, and creativity" to argue that the state is the most business friendly in the country. According to a California Policy Center report, however, more than 40 large corporations have left the Golden State in the last two years alone. The figure includes at least 10 public companies worth a combined $375 billion.
Newsom's address served in large part as a response to an ongoing recall effort that has amassed nearly 2 million signatures. Critics contend that Newsom's high tax rates and strict lockdown orders have chased away both small and large businesses in recent months. In addition, an ongoing housing shortage—the price of an average home in the Bay Area is more than $1 million—means many residents can't afford to live in the state. California experienced a net population loss in 2020 for the first time in 170 years, Census Bureau data show.
Pacific Research Institute senior fellow Wayne Winegarden called it "ridiculous" for Newsom to boast about California's business climate. He said that while the state has enjoyed "historical business success," it's now "nowhere near business friendly" thanks to "punishing" regulations.
"Right now, the policies are driving people and businesses from the state as fast as possible," Winegarden said. "Manufacturers have to deal with some of the highest energy costs in the country. You also have zoning regulations that add costs, an 8.8 percent corporate income tax—you're losing almost a third of your profits just by being located in California."
Newsom's office did not return a request for comment.
Software giant Oracle, real estate investment trust Digital Realty, and technology company Hewlett Packard Enterprise moved their headquarters to Texas in recent months. The three corporations pulled in a combined $70 billion in revenue in 2020, employing thousands of people in the process. Digital Realty CEO William Stein attributed the move to the Lone Star State's "affordable cost of living" and "supportive business climate."
A number of prominent investors and business owners have also taken their tax dollars elsewhere as of late. Tesla founder and CEO Elon Musk confirmed a move to Texas in December, saying that while California "used to be the center of aerospace manufacturing," his companies "are the last two left." The trend has even found its way into conservative media—Ben Shapiro's Daily Wire announced a move from Los Angeles to Nashville in October due to high housing costs and homelessness.
But Winegarden noted that California's harsh regulatory environment isn't just driving out big businesses and star CEOs. He argued that the state's laws are "much more burdensome on small businesses than their larger competitors." Professional service workers, he added, are increasingly relocating to states where they can earn a higher net income with lower costs of living.
California's business woes have not stopped President Joe Biden and congressional Democrats from attempting to mirror some of the state's most unpopular policies on a national level. The PRO Act—which passed the House on Wednesday—would nationalize California Assembly Bill 5. The controversial labor law limits businesses' ability to designate workers as independent contractors, a regulation that experts say burdens unemployed workers looking to take on temporary jobs during the coronavirus pandemic. Biden has pledged to sign the PRO Act should it pass the Senate.
"High tax, anti-worker legislation is making California unlivable for everyone except the wealthy and even many wealthy people are heading for the door," Rep. Mike Garcia (R., Calif.) wrote in a recent Fox News opinion piece. "The American people deserve better—and we must fight to protect them from what California has become."