You read about the many individuals that left lockdown blue states during the COVID pandemic (read here, here, here, and here for a small sample), but businesses fled too, looking for survival in states that treated them with more respect. The data is in from the Bureau of Labor Statistics, and it isn’t a good look for governors who decided to put a stranglehold on their states’ economies. The Wall Street Journal’s editorial board writes:
We’ve chronicled the pandemic population flight from states with high taxes and high living costs that also imposed excessive lockdowns. A new report from the Bureau of Labor Statistics (BLS) shows that small businesses also left town.
The bureau examined trends in single-establishment business migration since the early 1990s using data from its quarterly census on employment and wages. It found that while migration fell during the 2001 and 2007-2009 economic downturns as business activity generally slowed, moves accelerated during the Covid lockdowns.
BLS counted 6,384 businesses in 2021 that had moved across state lines during the prior year, up from 5,524 in 2020 and 3,677 in 2010. Net migration to the South and from the Northeast doubled between 2020 and 2021. After gaining businesses from other states for most of the last three decades, the West lost a net 175 in 2021—mostly from California.
New York led in net business out-migration (487), followed by California (456), Illinois (208), Maryland (50) and Pennsylvania (33). Florida (399), North Carolina (148), Nevada (103), Texas (103) and Tennessee (92) drew the most businesses from other states. All besides North Carolina have no income tax.
These figures probably underestimate the business migration that occurred early in the pandemic since they don’t capture larger firms shifting headquarters or workforces to other states. Texas saw a spike in headquarter relocations in 2020 (42) and 2021 (80), more than half of which came from California.
Small businesses in professional, scientific, and technical services such as law, accounting, and consulting firms led the cross-state migration. There was also a large uptick in movement by finance firms such as small family investment offices. These businesses are more mobile since they don’t have a lot of specialized equipment.
They also tend to be more sensitive to tax policy because they employ higher earners. They are usually structured as pass-throughs under the tax code, so owners pay tax on earnings at individual income-tax rates—meaning a top marginal rate of 13.3% in California and 14.8% in New York City (up from 12.7% in 2020).
Action Line: Owning a small business is the creation of something great. You don’t want to do that in a state where at any moment, the governor might take it all away. Pull up videos on YouTube of gym owners lamenting as their livelihoods were destroyed, and you’ll get a sense of the heartbreak a small business owner feels when everything is taken away from them. No one should have to endure that. If you’re looking for a better America for your small business, start your search with my 2023 Survival States (check out the map below) and click here to subscribe to my free monthly Survive & Thrive letter and become a Survivor.
Originally posted on Your Survival Guy.
