Redrawing the American Economic Map
By: Paul Vancea
The American economic map is going to be redrawn by American citizens in the coming months and years. The way governors and mayors handled the COVID-19 crisis, as well as the way they ran their cities/states for years before COVID-19, led to millions of Americans to re-think where they choose to live.
Most headlines about COVID-19 relief are about forbearance, economic stimulus ($1,200/person), loans, relief packages and grants, etc. Those are useful, but they do not begin to scratch the surface of the real issues that slow down our entrepreneurs and businessmen: high taxation and high regulatory business environments. The best way to support entrepreneurs and businesses is not through grants and handouts; it is through sound economic policies and lower taxes. The system and infrastructure in which they operate must be business friendly.
Oddly enough, the states that were historically the home to the largest companies in the U.S., and where entrepreneurs from all over the world would risk everything to go to, such as New York, California, and Illinois, have grown over the years to be the least business-friendly states in America.
COVID-19 ravaged our country, economy, and way of life, but most of the damage was done through the over-reaction from state and local governments. The severe, extended lockdown rules and the arbitrary (and unfair) mandates allowing some businesses to function, while others were forced to shut down, without any real and consistent reasoning, have forced millions of American citizens to seriously rethink the state they live in.
Most professionals used to flock to places like New York and California because they provided many tangible career advantages, most important of which are opportunities and talent. Whether you wanted to pursue a career in finance, technology, medicine, arts & sciences, entertainment, the food industry, etc., states like California and New York dominated the pool of talent, and career opportunities. But not anymore.
It is estimated that half a million residents left New York since Coronavirus lockdowns started in March, and most of them refuse to come back. United Van Lines CEO Marc Rogers claimed that 61% of residents moving out of Manhattan are earning over $100,000 annually. According to a report from New World Wealth and Webster Pacific, the combined wealth in New York City fell by $336 billion in the 12 months ending June 30.
Meanwhile, tax collections in New York City dropped 46 percent in June, even while revenues generated in other parts of the state and the country recovered. That decline follows a 32 percent drop in May and a 23 percent decline in April. In May 2020, the state’s comptroller said the economic devastation facing New York had not been seen since the Great Depression.
Billionaires such as Carl Icahn (NY), Leon Cooperman (NJ), David Tepper (NJ), Paul Tudor Jones II (CT), Eddie Lampert (CT), Barry Sternlicht (CT), and President Donald Trump (NY), and many others, all left New York and the Northeast for states like Florida, where taxes are much lower and business regulations are significantly less stringent.
California is no better. California entrepreneurs and businesses are leaving the state by the thousands. In just 2018 and 2019— which were some of the highest economic boom years— almost 800 businesses said goodbye to California. Another 13,000 companies have left between 2009 and 2016.
Charles Schwab also announced they will leave San Francisco next year. Joe Rogan, the top podcaster in the world recently moved his headquarters in Texas, citing the insanity that California and Los Angeles have turned into, especially during the pandemic lockdowns. Elon Musk announced he is building a $1bn Tesla facility in Texas, after he was harassed by California officials for refusing to shut down his business in California. Musk intends to move all his operations from California to Texas in a short period of time.
The reasons for all these? Economics and draconian lockdowns.
Small Business Policy Index 2019: Ranking the States on Policy Measures and Costs Impacting Entrepreneurship and Small Business Growth” ranks the 50 states according to 62 different policy measures, including assorted tax, regulatory and government spending measures.
States like New York, New Jersey, Maryland, Illinois, and California consistently rank between places 45-50 out of 50. They are officially the least entrepreneurship/business friendly states in the U.S. On the other hand, states like Texas, Wyoming, Nevada, and Florida consistently rank in the top 5 states in America, as they provide the top environments and incentives for businesses and entrepreneurs.
Therefore, it is no coincidence that the 5 states at the bottom of the index have lost a total of $28.3 billion in Adjusted Gross Income, according to the latest IRS reports, while states like Texas and Florida have gained most of that income.
States like California and New York are headed for economic despair unless they do a complete reversal of their policies. Especially after COVID-19, for two reasons: First, people are not as tied to a place for work anymore as before – most people will not have to go back in the office like they used to do. The telecommuting trend growing in the US allows most people to choose where they wish to live, regardless of how far from work they are. And second, the draconian lockdown rules and the shutting down of businesses, woke up a lot of Americans who are not willing to put up with another government mandated lockdown, when they see other states in the country with much less stringent lockdown rules. It just does not make sense for them anymore.
Businessowners and entrepreneurs – research the best states to live and work and go there. The chaos that ensured from this lockdown created the perfect time to move to another state. Most rents and/or home prices have gone down, and people are more open to negotiating then before. Smart mayors and governors across the country are taking advantage of this fluid situation and are offering real tangible economic incentives to move to their cities/states. If you are serious about your business and have long-term plans, stop letting politicians and bureaucrats bully you.
Governors and mayors – Instead of demonizing businesses and entrepreneurs, constantly fining and taxing them, creating roadblocks through over-regulations and policies, the local laws should incentivize the creation of new businesses, new jobs, new revenues. Use tax incentives to promote cities that need economic growth. There are plenty of examples all throughout America, of cities being completely transformed through economic policy.
Economics, at its core, is the art of incentives, and so are economic policies: how to get people to do what you want them to do. If you want them to stay in your state, you need to provide the right incentives. Places like California and New York show a clear lack of leadership, and a clear mismanagement of incentives. Instead of attracting the best and brightest professionals, the governors of these states are literally driving millions of people away. It is clear something needs to change. The only question is, how soon or late will it be?
- New Report SBE Council Ranks 50 States According to Public Policy and Tax Climates for Small Business
- Webster Pacific – USA Wealth Report 2020
- Patch – Wealthy Retired Are Flocking to these Five States
- World Population Review – State Rankings – Cost of Living Index By State
- SouthStar Communities – Companies Leave California Bound for Texas