The COVID-19 pandemic has magnified the impact of these tax and regulatory-cost differences by demonstrating that many people (especially those in the technology sector) do not need to live near their place of work. The stampede out of Silicon Valley therefore owes something to telecommunication innovations such as video conferencing services. Oracle stated in a recent Securities and Exchange Commission filing about its move that “many of our employees can choose their office location as well as continue to work from home part-time or all of the time.”
In any case, driving around Silicon Valley, I see that the employee parking lots at Google, Facebook, and Apple are now empty. Regardless of whether these firms join others in moving their headquarters, it is already clear that a much larger share of their employees will work at a distance in the “new normal” following the pandemic. Facebook has already said that it expects around half of its employees to telecommute in the future.
Will California’s state and local governments reduce burdensome taxes, regulations, and other barriers to stop the outbound stampede? Key decisions by voters this past November offer hopeful signs that changes may be on the way. For example, Californians approved Proposition 22, which classifies drivers on ride-hailing platforms as independent contractors. In doing so, voters nullified part of Assembly Bill 5 (AB 5), which since September 2019 had restricted app-based drivers’ opportunities by classifying them as employees.
In another good sign, California voters rejected Proposition 15, which would have initiated a constitutional amendment to raise taxes on commercial and industrial properties. Voters could see that this was a swipe at the 1978 ballot initiative Proposition 13, which has long helped keep property tax rates down. Despite Governor Gavin Newsom’s support for Proposition 15, a majority of Californians knew that higher tax rates would ultimately compound their state’s problems.
And the underlying forces of dynamism remain. A Silicon Valley firm, Zoom Video Communications, is fueling the growth of telecommuting. Still, this is no time to be complacent. Even if parking lots start filling up again as COVID-19 vaccines are distributed, many firms will continue to leave the state unless the burdens of doing business are cut. Worse, instead of addressing the exodus, state lawmakers in Sacramento are now talking about a new wealth tax – another measure that would surely make things worse.
With policymakers having failed to deal with the growing problem of homelessness in San Francisco and Los Angeles, or even with the forest fires raging across the state, California’s ability to offer a high quality of life is under threat. But as one of the distinguished business leaders who has departed recently told me, “I still love California and hope to help fix it.” It is time to get to work.
John B. Taylor, under secretary of the U.S. Treasury from 2001 to 2005, is professor of economics at Stanford University and a senior fellow at the Hoover Institution. He is the author of "Global Financial Warriors" and (with George P. Shultz) "Choose Economic Freedom."