[Global Focus] IT = Silicon Valley, Finance = Wall Street... Now It's Wrong

Industry Shock as HPE, Spun Off from Silicon Valley Pioneer Hewlett-Packard, Moves to Texas
No Corporate Tax Draws Tesla, Oracle, Dell to Texas... Musk Also Relocates Residence
Elliott and Others Move to Florida with No Capital Gains Tax... Remote Work Expansion Fuels Relocation

[Asia Economy Reporter Kwon Jae-hee] There is a place in the United States selling a beer called ‘The Sammy,’ inspired by the Korean company Samsung Electronics. It is Taylor City in Texas, which Samsung selected as the site for its second semiconductor foundry plant in the U.S.

Texas Beer Company, a brewery operating in this area, said it came up with this idea after Samsung Electronics announced it would invest 20 trillion won to build a factory in Taylor City.

This is a representative example of Texas’s pro-business approach. It’s not just Samsung. Even before Samsung, countless IT companies such as Tesla, HPE, Oracle, and Dell chose Texas. Especially when HPE, which spun off from Hewlett-Packard, announced in December last year that it would move its headquarters from Silicon Valley’s San Jose to Houston, Texas, the industry was shaken considerably.

Since Silicon Valley began when Bill Hewlett and David Packard founded the company in a garage in Palo Alto, California, in 1938, it was regarded as the origin and symbol of Silicon Valley. Therefore, HPE’s headquarters relocation became a symbolic event of the ‘tech exodus.’ Shortly after the shock subsided, Oracle also announced it would move its headquarters to Austin, Texas.

Reflecting this trend, cities in Texas located in the southern Sunbelt region of the U.S. were named the ‘Best Tech Cities’ for the second consecutive year, surpassing Silicon Valley and New York, according to a survey released by the Computing Technology Industry Association (CompTIA) at the end of last year.

The association stated, "Austin, Texas, is home to more than 5,500 IT companies and startups," and forecasted, "Quality IT-related jobs in Texas will increase by 16% over the next five years."

This is not just a story about Texas. Florida, another Sunbelt state in the South, is also absorbing companies based in New York one after another. If Texas is the new Silicon Valley, Florida is emerging as the new New York.

Companies that left New York for Florida are mostly financial firms such as private equity firm Elliott Management and Blackstone, one of the world’s four largest private equity firms. Billionaire investors Carl Icahn, John Tudor Jones, and David Tepper also moved their offices to Florida. Goldman Sachs is considering relocating one of its major divisions, the asset management division, to Florida.

In the U.S., this movement is seen as the ‘Sunbelt’ replacing the traditional industrial cities known as the ‘Rust Belt.’ The Sunbelt refers to regions in the southern U.S., including Arizona, Texas, Florida, and the Carolinas, which are attractive due to low taxes and warm climates.

Especially, the low taxes are understood to be the biggest factor driving companies to leave Silicon Valley and New York and move south. Texas has set the lowest corporate tax among the 50 U.S. states. It does not impose a separate state corporate tax but only levies a business tax of up to 1%.

Of course, the federal corporate tax (21%), which applies to all states, is separate. The goal is to collect less tax but attract more companies to revitalize the local economy and create quality jobs. In 2020 alone, 653,000 people left California, and among them, 82,000 moved to Texas.

Texas has no corporate tax as well as no personal income tax. This is exactly why billionaire Elon Musk, CEO of Tesla, moved not only Tesla’s headquarters but also his residence to Texas.

Florida, which is emerging as the new Wall Street, is the same. Florida has no personal income tax or capital gains tax at all. This contrasts with New York State, which collects about 13% of income as local taxes. Moreover, after the COVID-19 pandemic, New York State, facing a fiscal crisis, began discussing the introduction of a wealth tax on billionaires, accelerating the exodus from New York.

David Solomon, CEO of Goldman Sachs, pointed out at the ‘Global Banquet Summit’ conference hosted by the Financial Times (FT) last month, "High taxes do not guarantee New York’s status as a global financial and industrial center." He emphasized, "New York must keep itself attractive," adding, "What matters are incentives, taxes, and the cost of living for citizens."

The spread of remote and work-from-home work due to COVID-19 is also encouraging companies to move to the Sunbelt. San Francisco, where Silicon Valley is located, and New York, where the financial district is concentrated, are among the most expensive cities in the U.S. for office rent. They are also famous for high housing and living costs.

According to U.S. Postal Service statistics, more than 300,000 people left large cities last year alone. Among them, the city with the most prominent population outflow was New York (Manhattan and Brooklyn), followed by San Francisco and Los Angeles (LA).

Consulting firm West Monroe reported that one in four companies located in large cities is currently considering relocation, and 4% have already relocated. The reasons these companies considered moving their headquarters were high costs (39%), taxes (21%), real estate (16%), and regulations (8%).

This content was produced with the assistance of AI translation services.