After 17 years in the Bay Area, Palantir Technologies flounced out of California in 2020, declaring Silicon Valley a “monoculture”. According to the $43bn data analysis company, Denver Colorado is the future.
There is no guarantee Colorado will prove more tolerant of Palantir’s controversial government contracts than California. But Palantir is not alone in moving. In December Elon Musk declared he had relocated to Texas, where electric car company Tesla has a factory under construction. Oracle’s Larry Ellison says his primary residence is now Hawaii.
Software group Oracle is shifting its headquarters to Texas, where HP Enterprises is also headed. E-cigarette company Juul, whose plan to disrupt the tobacco industry has been hammered by regulators, has moved closer to lawmakers in Washington DC.
The tech exodus is being blamed on clashing ideologies. Californian Democrats have repeatedly fought with libertarian technocrats. But for those reaping gains from rocketing tech company valuations, the deciding factor is probably less high-minded. California has one of the country’s highest rates of state income tax, with a 13.3 per cent top rate. Last year, Democrats proposed surcharges for income above $1m. Compare that with Colorado, where the top rate is 4.63 per cent. Or Texas, which has no state income tax at all.
Corporate income tax rates are also lower in rival states. In California, companies pay 8.84 per cent. In Texas they pay less than 1 per cent.
For both employees and employers, remote work means location flexibility. That could hurt expensive cities. San Francisco rents fell 27 per cent last year, according to Apartment List, as workers jettisoned costly apartments. This compares with a 1.5 per cent decline in the wider US.
Yet the tech-odus should not be overhyped. The biggest companies are staying put. Apple’s spaceship HQ and Facebook’s campus are not expected to close. Even leavers are not severing ties. Tesla’s HQ will remain in California. Juul has kept its San Francisco office open.
Most importantly, new companies are still springing up in California. The Bay Area remains the heart of venture investment — accounting for a third of start-up funding in the third quarter, according to Crunchbase. Wealthy founders may be leaving California. Those hoping to replicate their success continue to arrive.
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