Tag: Texas

OM in the News: What Texas Wants for Christmas

The answer: More California companies to relocate to what Texas claims is the more business-friendly state. Oracle and HP are the latest big corporations to announce moves to the Lone Star State. Elon Musk, the CEO of Tesla, is also moving to Texas, and the electric car company is expanding there.

The announcements have highlighted the vastly different tax and regulatory systems in the country’s two most populous states, writes The Wall Street Journal (Dec. 17, 2020). California relies more on taxing personal income, particularly of high-income households, and operates a growing regulatory structure. Texas leans on more regressive property and sales taxes and boasts a more laissez-faire environment. The biggest difference: High-paid executives who move can see their state income-tax bills go from 13.3% to nothing.

Austin houses the powerful attraction of the U. of Texas

Moves by high-profile companies to Texas from California are not only likely to improve the personal finances of executives, but also offer employees more affordable housing and lighten regulatory burdens. For companies, much of the difference between California and Texas boils down to ease and cost of hiring—not just now but down the road. Companies have grown frustrated with the cost of attracting and keeping employees, as living expenses soar in California, and as regulatory mandates expand. “The compounding effects of California’s economic and political environment is making it more difficult to run a business effectively,” said one industry expert.

The Tax Foundation puts Texas 11th in its ranking of state business-tax climates, with California 49th. The biggest factor—outweighing any change in business taxes—is likely to be the lower cost of employing workers in the state. For most employees, that calculation is about housing costs.

Classroom discussion questions:
1. What other factors mentioned in Ch.8 (Location Strategies) affect location decisions?

2. How is “clustering” an advantage to both of these states?

Teaching Tip: Texas Has Location, Location, Location

Of our 100’s of blogs over the past year, the second most widely read one has been on why firms choose to locate in Louisville.  (The first is on “Bottlenecks in Intensive Care Units“). But The Wall Street Journal (Aug.22, 2011) tells why Texas is giving Louisville and Kentucky  a run for their money.  Here are some advantages that other states would be hard to match: convenient location in the middle of the country, transportation hubs, a big bilingual population, mild winters, and abundant space. And as Texas’ governor (who is running for President) trumpets: “no personal income taxes, relatively light regulation, laws that restrict labor unions’ power, and a welcoming attitude that eases the transition”.

“When you put it all together in its totality…that’s what made Texas stand out”, adds the GM of Medtronic, whose firm decided to locate its 1,400 job diabetes center in San Antonio. Of the 900 cities the med tech company explored, 3 of the top 5 choices were in Texas. “The state offers short flights to both coasts, a bounty of qualified workers at a reasonable cost, and a team of local and state economic developers to help jumpstart  operations”.

Texas has gained over a million jobs since 2000, while the US has lost 1.3 million in that period. The private health care and private education expanded by 40% in the decade, public education jobs by 24%, and the mining sector by 67%.

The state is unusual in many ways– covering an enormous swath of land, with a huge and growing population that provides both an ample work force and a robust demand for goods and services. When we discuss location decisions in Chapter 8, we see that financial  incentives are often not as critical as a healthy business environment.