One of the largest financial companies in the United States is moving its headquarters to start the year.
Charles Schwab, as part of its merger with TDAmeritrade, is heading to the Lone Star State. This is a move that is following the likes of Oracle and HP, two long term California companies that fled the most populous state.
The Schwab situation is an interesting one. In Dallas, they will occupy a $100 million campus. This is a lot of money until you consider the savings the company will experience.
A large part of the move is the cost of doing business in California. Chairman and founder, Chuck Schwab alluded to this in a statement about the move.
The company is expected to save 20% through the move, or a couple billion dollars, over 3 years.
This means they will pay for their campus through a few months savings.
It is a trend that is starting to really penetrate Silicon Valley. Many of the tech billionaires are learning that the environment in California is just too much. These individuals have the means to move wherever they want.
Obviously, the lack of an income tax in Texas is part of the appeal. It is also a much friendlier environment from a regulatory standpoint. For Schwab, this makes sense since Dallas started to become a financial hub in the 1980s. Thus, they will be right at home.
One of the biggest challenges for the state that is left behind is recouping that lost tax revenues. When billionaires leave, and take their businesses with them, there is a huge hit. In California's case, it taxes the tech industry at a higher rate than others. This means the likes of Musk and Larry Ellison bear a large burden. By moving, they remove that from around their neck.
It is a situation that puts even more pressure on the budget. Hence, one of the ways to recoup that lost revenue is to tax those who remain. This gets difficult if the producers start to leave in larger numbers. Losing the income on a Musk's or Ellison's overall income package is enormous. It takes a lot of mid-level managers to make up the difference.
Hence we see the same old playbook run. When the big players leave, those left are stuck picking up the tab. While the mantra of only taxing certain wealth zones makes for great television, it does not fill the coffers of a declining tax base. Ergo, politicians start to look for other ways to supplement things.
This means more taxes across the board. It also could mean a cut in services as choices have to be made.
The reality is we never dealt with this much wealth in the history of the United States. Tesla took a $500 million hit last quarter on its earnings in relation to Elon's compensation package. Without knowing the details of his payouts, it is safe to say that him relocating is going to cost the State of California billions in tax revenue over the next decade.
And this is from just one person. Ellison is no slouch himself and he took his billions to Hawaii, not exactly a cheap state.
As we can see from the Schwab situation, the numbers are simply too big to ignore. When you can pay for a $100 million corporate headquarters in a few months simply from the savings of relocation, that is something that any CEO and CFO has to look at.
We live in a time when politicians promise the world to everyone. Once elected, they find that delivering becomes a major problem. That carries little weight as we know politicians do not care about breaking promises. However, when they are forced to push the burden onto the rest of the population, that does not sit well with people.
Of course, none of this even encompasses the loss of jobs. Some companies might relocate their employees, others will not. Either way, thousands of jobs, high paying in this instance, are about to head further south.
This, too, has an economic impact on the State revenues as the next few levels of employees are now facing a loss of income.
It is a cycle that keeps repeating itself until there is very little left. We saw this at the city level for decades as places such as Baltimore, Pittsburgh, Detroit, and Akron saw their industries depart for a variety of reasons. The cities started to fall apart as the tax revenue plummeted, causing major economic and sociological issues (a polite way of saying they became s**tholes).
History might not repeat itself but it does rhyme. I recall New York City in the 1970s when businesses had enough of the city and the entire environment. White Plains, Stamford, Greenwich, and New Jersey all saw an influx of corporations fleeing the city. This took the tax base down to the point where the city had to declare bankruptcy.
We seem to see the same story always playing out. Greedy politicians cannot help but to keep reaching for more money. When they do that, those with the most to lose end up leaving.
In this era, they take their multi-billion corporations with them.
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