Will COVID-19 Send Companies Out Of States Like California and New York

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Elon Musk made news by spouting off his dissatisfaction with the health department and claiming that he would move Tesla's headquarters out of California.

Musk is known for spouting off without being too diplomatic about things. Thus, it could be nothing more than "Elon Smoke".

There is, however, a lesson in all of this. It could hold great impact on where companies are located.


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The situation with Musk might have nothing to do with his perceived loss of liberty. Instead, Musk, along with other CEOs, are going to be confronted with simple financial decisions that could radically affect their companies.

California is not a cheap place to operate. That is well-known. The challenge for companies there is that it is about to get a lot more expensive.

Due to the shut down from the Coronavirus, the state is now facing a shortfall of $54.3 billion. This is money that has to be made up. This means higher taxes. To put it in contrast, this is 46% higher than during the Great Recession.

This has led California lawmakers to consider a series of heavy tax increases to close the deficit. On top of that, voters will consider two ballot initiatives this November to hike property taxes on commercial properties up to $12.5 billion annually.

This would increase property taxes in California by 20 percent.

A 20% increase in property taxes is huge. It really will impact the bottom line of businesses.

Lastly, business analysts estimate that Telsa, and other firms, can save 32 percent of their operating costs by moving out of California, due to lower tax, land, labor, energy, and regulatory compliance costs.

https://www.foxbusiness.com/money/tesla-texas-things-getting-real

If this analysis is correct, it could be major for businesses. This percentage, 32%, is a lot of money for multi-billion dollar operations. The expense to move would be a heavy hit yet would be made up quickly.

This could turn into a cycle that repeats itself. As states lose tax revenue, they make up for the shortfall by raising taxes. This will force companies to leave, furthering the tax shortfall. In response, the states raise taxes again, pushing more companies out.

Rinse and repeat.

Once again, COVID-19 might be just a magnifying glass on trends already in place. Companies and high net worth individuals were already starting to exist the high tax states.

Whether Musk follows through is not relevant. He is just one player and moving a manufacturing facility is not easy. Other companies could find a physical transfer a lot easier.

A major increase in real estate prices on commercial properties could give CEOs something to seriously think about.


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California is in so much trouble that the elementary school system in Chula Vista (a city in San Diego County) is considering four day school weeks so teachers can have a furlough day and they can pay them less.

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Musk does a lot of things that are trollish in nature. Maybe he is just trying to troll the gov?

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