There’s a Beach Boys car song just begging to be written here. With its engine revving, a major car company is driving off into the sun — except, in this case, it’s driving east, into a sunnier business climate.
That’s why Toyota’s announcement that it’s moving much of its American operations from California to a Dallas suburb should come as no surprise.
“After 57 years of being based in the trend-setting Los Angeles area, Toyota Motor Sales U.S.A. is moving its sales and marketing headquarters to Plano, Texas, sources close to the matter said,” reports Auto News. “The move will occur in stages and take two years to complete, the people said. Most of Toyota’s 5,000 Torrance-based headquarters management and employees will be affected, several Toyota insiders said.”
It’s no real mystery why.
“Despite the deep, creative talent pool in greater Los Angeles, doing business in California has become more expensive for companies and their workers,” the industry news agency reports. “The Los Angeles metropolitan area has been ranked ninth most-expensive in the United States by Expatistan; the greater Dallas area is 19th. According to the Tax Foundation, California trails only New York and New Jersey as the worst for complex, non-neutral taxes with comparatively high rates. … Forbes ranked Texas the seventh-best state for business, a measure that factored a No. 1 ranking for business climate and a 23rd-best ranking for business cost. California came in at 39th out of 50 states, with a 36th-place business climate and seventh-worst business cost.”
The principle is simple. Capitalists aren’t all greedy, but they’re not dumb, either.
Economist Arthur Laffer’s famous “curve” theory is that capital and people are inherently mobile. His theory says that if taxes are raised to levels considered unreasonable, then people (and companies) will move to avoid them. Thus, revenues will decline even as rates increase (that’s the curve).
History is on Laffer’s side.
In 2011, Oregon hiked the state income tax on the richest 2 percent of its residents, in a typical “soak the rich” scheme to plug a budget hole, but it soon found that its revenue estimates were off by more than a third.
And in Maryland, a “millionaire’s tax” pushed by Gov. Martin O’Malley between the years of 2007 and 2010 resulted in a net loss of $1.7 billion in revenues — because the wealthy moved their money (and often their homes) to states with more friendly tax codes.
And that’s exactly what’s happening here.
“The surprise move is a blow to the Golden State, the biggest U.S. auto market and proponent of the strictest clean-air rules,” reports the Bloomberg news agency. “Toyota’s Prius hybrid has been California’s top-selling model for the past two years and helped secure a leading 22 percent market share. It also represents a victory for Texas Governor Rick Perry, who’s made repeated visits to California to lure businesses to his state with promises of lower taxes and easier regulations.”
Texas is benefiting from the good decisions our lawmakers made in the past — and from the bad decisions being made elsewhere today.