ElonMusk’s warning for Illinois
We don’t knowif ElonMusk abandoned California for Texas in a Tesla. He probably didn’t strap himself into a SpaceX rocket and fly across country. All we knowis thatMusk, like a lot of CEOs and entrepreneurs, is a strategic, flexible thinker. He’s notwelded in place and neither are his businesses. Think of Musk’s high-profile departure from the West Coast as anotherwarning to Illinois because businesses and people rocket out of this state routinely.
“California is great,” Musk told TheWall Street Journal, but then said the state had begun taking its economic success for granted—“a little complacent, a little entitled.” For all its sunshine and entrepreneurship, California, like Illinois, is regulation-heavy and tax-happy. Texas is the opposite. A few months ago, California Gov. GavinNewsom said hewas “notworried about Elon leaving any time soon,” and nowhe’s gone. Musk, who built his fortune in the Golden State, put $62millionworth of California properties on the market and became a Texan.
Musk has two major projects in Texas, a new Tesla factory outside Austin and a SpaceX rocket production facility and launch site near Brownsville. That’s where hewas recently when one of his test rockets blew up while landing. Musk didn’t sound disappointed; he said his team got the data it needed. The savant-like entrepreneur is designing a spaceship that will go toMars, and it certainly will require experimentation and perseverance to succeed.
Musk can deal with design challenges. But hewas frustrated when local California officials shut down Tesla’s factory during the COVID-19 outbreak. He’s also got a personal financial incentive to move to the Lone Star State: Texas has no state income tax or capital gains tax for individuals. But there are bigger reasons for companies, even the shining stars of Silicon Valley, to go to places like Texas. The nonpartisan Tax Foundation’s 2021 ranking of the 50 states’ business climates puts Texas at 11th best. Illinois ranks a lowly 36th while California trails further behind at 49th. What are the chances Musk’s next big idea will take root in Texas rather than California, or Illinois? That’s rhetorical.
The allure ofTexas
Last monthwe wrote about Republican TexasGov. Greg Abbott pursuing several Wall Street firms, including Chicago-based Citadel, that operate data farms inNew Jersey to relocate. Democratic Gov. Phil Murphy ofNew Jerseywants to institute a tax on each data transaction in his state. The same bad idea— the so-called LaSalle Street Tax— gets kicked around in Chicago and Springfield almost annually.
Here’s the problem: Data farms can relocate. So can futures exchanges and trading desks and big-brained entrepreneurs. Plenty of businesses can leave Illinois and take their payrolls and tax contributions with them. One of the big lessons ofCOVID-19 is thatworkforces in many industries can operate remotely.
In Silicon Valley, where Tesla is headquartered, lots of techworkers say they are
thinking about keeping their jobs butmoving to less-expensive states. Oracle, the software giant, just changed its headquarters from Redwood City, California, to Austin. A big reasonwas to decentralize operations to reflect the desire of employees towork remotely. Oracle says itwants to “provide our personnel with more flexibility about where and howtheywork.” That’s the kind of trend that could really hurt Illinois if it remains so uncompetitive, because techworkers, like somany people, get it— they don’t have to stay here and pay high taxes that getwasted by Springfield or sucked into the black hole of debt our politicians have accumulated.
The Illinois Exodus isn’t exiting
We’ve been chronicling the Illinois Exodus for years as residents and employ
ers depart for other states with stronger economies, lower tax burdens and bettermanaged governments. It’s gotten very easy for people to say goodbye to Illinois, its tax-and-spend politicians and fiscal dysfunction. Illinois needs to retain and attract thoseworkers to generate enough tax revenue to begin to slowits draincircling. To do that, Gov. J.B. Pritzker and the General Assembly need to make Illinois more hospitable to businesses. More like Texas.
Texas added more than five times as many jobs as Illinois last year. The Lone Star State’swelcoming approach to economic growthworks. Illinois’ slowgrowth/ big government approach doesn’t.
States that make it easier for employers to growand hire will reap the benefits. States that pound employers with heavy tax and regulatory burdens will scare them off. It’s not rocket science.