Chief Executives Name California as Worst State for Doing Business

The Silicon Valley area as seen from Monument Peak in near Milpitas, Calif., in a file photo. Yuval Helfman/Shutterstock

Commentary

California is the worst state in the union for doing business—again.

For the second year running, California ranked dead last in a survey of chief executives regarding the best and worst states to run companies.

Even though California is home to the Port of Los Angeles, Silicon Valley, Hollywood, and Napa Valley—all best-in-class for the industries with which their regions are synonymous—California’s high tax burden, high cost of living, and other factors put the Golden State at the bottom of the list, according to the latest annual ChiefExecutive.net survey.

The survey in March asked 383 chief executives to share their views on the worst and best places to do business in America.

Texas topped the list for the 17th consecutive year.

When choosing a place to operate, 37 percent of surveyed chief executives said a state’s tax policy was the decisive factor. A state’s regulatory climate was the highest priority for an additional 35 percent of respondents; the remaining 25 percent named the availability of talent as the most important component.

Texas doesn’t have an income tax, just a “franchise tax” of up to 0.75 percent on margins. It also famously has a very light regulatory regime.

Conversely, California has a corporate tax rate of 10.84 percent for banking and financial firms and an 8.84 percent tax rate for everyone else.

Furthermore, California’s regulatory regime is so tight that even the city of Los Angeles is having trouble building housing for its homeless population because of a regulatory regime the city’s controller, Ron Galperin, recently called “spools of red tape” and “a serpentine permitting process.”

Despite California’s high tax burden and “serpentine” regulatory regime, it does benefit from world-class talent, whether movie and film production in Hollywood, wine production in Napa or Sonoma counties, or medical equipment production in Orange County.

California remains home to 48 of the Fortune 500 top companies in the U.S., including Disney, Chevron, Apple, and Wells Fargo.

Many new companies will choose to be in California to be in or near one of the state’s world-class “clusters” such as Silicon Valley or the San Pedro Bay Port Complex.

For example, SpaceX’s operations in Hawthorne, near the Los Angeles International Airport, are in the middle of Southern California’s aerospace and defense industry.

However, if a company doesn’t need to access the particular talent associated with one of California’s many best-in-class industry clusters, the state’s high tax burden and tight regulatory regime will likely cause chief executives and company founders to look elsewhere.

Tim Shaler is a professional investor and economist based in Southern California. He is a regular columnist for The Epoch Times, where he exclusively provides some of his original economic analysis.