Leaving California

Nevada’s business climate still a plus

Even though Nevada companies now face additional expenses associated with the new commerce tax, the state retains a relatively favorable business climate. That will continue to be a significant asset — especially given our western neighbor.

“California is making it impossible for anybody but the people in San Jose to live there very well,” economist William Dunkelberg said last week alluding to the Golden State’s housing, tax and regulatory environment.

Mr. Dunkelberg, chief economist for the National Federation of Independent Business, was in Las Vegas to address a gathering of local small business owners. He emphasized that California’s anti-business political bent has consequences.

As California piles more and more mandates on entrepreneurs, as zoning and environmental obstacles drive home prices beyond the reach of all but the upper class, as state taxes continue to climb, more companies and residents will vote with their feet.

According to IRS tax return data, more than 5 million people left the state between 2004 and 2013, leaving California with a net population loss of 1 million. Nevada was the third favorite destination for those fleeing, behind only Texas and Arizona. The numbers reveal that more than 400,000 California residents packed up and left for Nevada over that period, bringing with them more than $10.6 billion in annual income.

“For the past two decades,” the Manhattan Institute reports, “California has been sending more people to other American states than it receives from them.” The explanation doesn’t require an in-depth dissertation. “States that have gained the most at California’s expense are rated as having better business climates,” the institute concludes. “The data suggest that many cost drivers — taxes, regulations, the high price of housing and commercial real estate, costly electricity, union power and high labor costs — are prompting businesses to locate outside California, thus helping to drive the exodus.”

That conclusion meshes with the NFIB’s latest survey in August, which found that taxes, red tape and labor outlays are top problems for small businesses.

Mr. Dunkelberg noted that California’s soaring housing and regulatory costs will continue to benefit Nevada. “You’ll see changes in the distribution of businesses that can survive there,” he said.

Nevada has also moved to shore up its under-performing education system — steps that include offering families more choice and decentralizing the massive Clark County School District. In the long run, this could potentially result in a higher quality labor pool.

State policymakers must remember, however, that California business owners looking to relocate have low-tax options other than Nevada. Adding more and more burdens like the commerce levy will only further erode the state’s competitive advantages.