Don’t Worry, Be Happy – Bobby McFerrin
In May 2020, CA Gov. Gavin Newsom said he wasn’t worried about Tesla leaving the state. Last month, when Elon Musk announced he was moving Tesla to TX, the Gov. changed his tune. It seems he felt he helped create the company, citing the tax breaks he gave them.
Hypernomics has seen this argument before. Breaks in CA usually amount to slight and temporary reductions in the business-crushing tax rates CA has compared to other states. That’s why companies by the thousands have been leaving CA. A legislative “solution” to lost tax revenue is to have CA tax requirements follow businesses and individuals once they leave the state. But that 1) denies some tax monies to other jurisdictions and 2) makes it less likely for new companies to enter CA.
CA has the best weather in the US, but the Tax Foundation ranks it next to last in its business climate. As hypothesized below, the Value to taxpayers increases with the physical and business environments. Increasing the latter’s Value makes it more appealing to taxpayers – if they are attracted enough to come into the state, they offer more Ways for CA to get needed tax dollars. At the same time, all mature markets have Demand Frontiers, which deliver the Means by which they must abide. It’d take lots of work to learn these forces in detail. But avoiding that effort leads to unpleasant surprises.