Recently the state of Texas has been a perfect example of a country-wide shift in the relationship between politics and business. Like a teenage Facebook romance, it’s a relationship that’s often complicated. At times, state governments offer tax breaks and incentives to usher new businesses in – at other times the corporate and personal income tax goes up and companies threaten to cross state lines. Already this year, Texas’ politicians have – perhaps inadvertently – pushed away General Electric with their objections to the Export-Import Bank. Meanwhile, other companies in the tech sector are flowing out of the Bay Area and into Austin.
This issue isn’t relegated to Texas or even the South as a whole – this year it’s going to be one of great changes for the country, and a number of political and economic factors will determine where companies end up.
Income tax, corporate tax and calculated moves
General Electric is a prime example of how tax situations can affect corporate thinking. According to The Wall Street Journal, GE is moving its headquarters out of Fairfield, Connecticut, its home of nearly 42 years, because of a recent increase in corporate tax rates. GE could have moved to Texas, but passed because, it seems, of differing political views. Likewise, it could have moved to New York, where the company has long-standing ties, but it appears that high personal tax rates were too much. And so one of the largest corporations in the U.S. is moving to Boston, where they will benefit from nearly $145 million in tax incentives.
These kinds of incentives are important to big players like GE, and they could have benefits that reach smaller players. Corporate relocation measures will have to take the tax situation into consideration. It could mean the difference between a fat profit margin and one that’s razor-thin. When a conglomerate like GE makes big moves, it could create a rising tide that raises other ships.
The bigger picture: Political tidal wave
No matter which party or which candidate wins the presidential election this year, it’s going to mean big changes for the country. Just as individuals cast votes for the representative of their choice, so do corporations and industries lobby for the candidate who will benefit them the most. Lobbies are an extreme case for ways in which businesses can influence the political system. Another tangible effort is actually where the businesses decided to set up shop. Relocating to a new state is as good as casting a vote in favor of that area’s dominant political philosophy.
According to the San Francisco Chronicle, tech companies are either moving or expanding into Texas because doing so will cut costs. That’s one side of the coin. On the other, those companies must believe in the political direction of the state, or they’d go elsewhere. After all, plenty of other states have cheap office space. And it’s the implication of that seemingly innocuous fact that could cause an upheaval in the corporate landscape. After Texas and Massachusetts, where will businesses flock to next?
Let us know what you think. Will the next Silicon Valley pop up in Iowa? Should politicians be more reserved about voicing their opinions? Join the conversation by tweeting @MSIGTS.