California state experiences a payroll contraction during the first eight months of 2025, marking the largest job decline since COVID. The state’s 5% unemployment rate is above the national average and has remained so for the past 19 consecutive months. Over 173,000 jobs disappeared from California from January to November 2025, a 14% annual increase, with the tech sector alone shedding 75,262 jobs.
Fannie Mae is fleeing San Francisco to Birmingham in 2026 as it has become impossible to conduct business in California. Numerous major companies have announced relocations from California in the upcoming year. The Walt Disney Company will relocate around 2,000 jobs in Southern California to Central Florida. GAF Energy, a solar roofing company, plans to shut down its headquarters in San Jose in favor of Georgetown, Texas. John Paul Mitchell Systems, a hair products manufacturer, will relocate HQ to Dallas.
Governor Gavin Newsom believes he can continue spending and rescue the state from the debt through taxation. Fleeing businesses can’t pay taxes, and California forces both businesses and residents to pay some of the highest taxes in the nation. All corporations operating in the state must pay a flat corporate income tax rate of 8.84% on net income. Banks and financial institutions pay a bit more at 10.84%. There is an annual franchise tax of $800 for businesses as well. But wait—corporations are still beholden to the 21% federal corporate income tax, which means businesses are paying roughly 29.84% on corporate income taxes alone.
Payroll taxes in California are higher than the national average, largely due to social programs like State Disability Insurance (SDI) and the Employment Training Tax (ETT), which must be paid in addition to Unemployment Insurance (UI). There is a personal income tax withholding of up to 14.63% that employers must withhold from employees as well.
Companies reducing their tax liability through research and development (R&D) credits or those operating at a net operating loss are the only industries growing in California right now The expansion of the AI sector and venture capitalism is propping up California right now. Newsom would not admit it but the One Big Beautiful Bill provided the state with a major stimulus. AI investment in California has reached $405 billion for the year, nearly doubling the $250 billion estimate.
Capital flees excessive regulation and it’s almost a no-brainer for corporations to move beyond state lines where operating costs are drastically lower.