Description:

Some states like Texas, Tennessee, and Florida don’t have personal income tax which makes them attractive to businesses and residents alike. Tom is joined by Ed Curtis, author of Why Texas to discuss this tax impact on migration.

SHOW NOTES:

04:56 – Should states tax income the federal government is already taxing?

07:39 – What enticed Elon Musk to move Tesla to Southeast Austin?

08:52 – What is funding states that don’t collect income tax?

11:16 – A look at fractions of government fighting for money

15:08 – The benefit of business being close to the supply chain and to customers

19:29 – The number one reason companies relocate is talent

23:25 – Why companies need to communicate their plans with key employees

Transcript

Announcer:
This is The WealthAbility® Show with Tom Wheelwright. Way more money, way less taxes.

Tom Wheelwright:
Welcome to The WealthAbility Show, where we’re always discovering how to make way more money and pay way less taxes. This is Tom Wheelwright, your host, founder, and CEO of WealthAbility. We’re seeing a mass migration out of the coasts to the interior of the country and to the South of the country. Why is that? What do we have to look for as business owners and investors in where we locate and what do we need to look at from a political standpoint as to what’s going on here, why are people moving so quickly out of these states, and basically, what can we do about it? I’ve got a very special guest, very, very special, Ed Curtis from Why Texas, and one of my favorite states, Texas, where I went to school. I’m a big fan of Texas, The Lone Star State, and a very big fan of what you’re doing, Ed. If you would, just give us a little bit of your background and what it is you’re doing and why you’re doing it.

Ed Curtis:
Well, Tom, it’s great to be here. Yes, I moved to Texas from New York back in 1993, so last year was actually the first year I eclipsed more years in Texas than I have in New York. I don’t think they’ll consider me a Texan, but I’ll call myself a “quasi-Texan.” I moved down here as a young man. I really just wanted to explore a little bit. I had grown up in Upstate New York and my family had commuted into Manhattan for 20 years, two hours each way to work every day, and I didn’t want to do that, so I moved into Manhattan after I graduated college. I spent two years doing that. I recommend that to any young man or woman. Spend a couple of years in New York, it’ll toughen you up a little bit. Decided to journey into Texas. Two cities were on my map, Dallas and Atlanta. At that time, both of those cities were the up-and-coming cities. I took a one-way trip and never came back and I’ve been here ever since.

Tom Wheelwright:
What are you doing with Why Texas? I know you’ve got a book out called Why Texas. What are you doing here and why? Why are you promoting Texas like you are?

Ed Curtis:
I think it’s a very special place and I think it is for many reasons that I don’t think really get a lot of attention. Look, Texas is good at bragging about themselves, but they’re not very good about telling their story, and as a native New Yorker and someone who had spent my whole adult life here, I was entering my 40s. Like most somewhat midlife crisises, I had looked around, I wanted to break out of the industry that I had spent most of my career, that was commercial banking, and I wanted to learn a little bit more about economic development. I wanted to learn more about the history of Texas and the more I dug in and I learned, the more I felt people really needed to understand how it operates here.

Ed Curtis:
From a personal standpoint, it’s because even though today, we’re hearing that companies and people are moving to Texas in droves, it’s actually been happening for a long time, for about 10, at least 10, 20 years, so I really felt, I guess, a personal mission to help people that were moving here really understand why it works. When people say, “Your company is called Why Texas. Is it why you should move to Texas?” It’s more of why it works and why you need to understand that and maybe your decision to move here, maybe it will change your decision not to move, but if it educates you somewhat, you’ll be more successful when you get here.

Tom Wheelwright:
I think that’s awesome. Texas, as most people know, has a zero personal income tax. It has a franchise tax, that’s a small franchise tax, but not really a corporate income tax. One thing, of course, I’ve studied taxes for over 40 years and tax policy as well. What kind of impact do you think your tax system actually has on people moving in or people staying there?

Ed Curtis:
Tom, I had an interesting conversation with a CEO who said to me, he said, “You know, Ed, the fact that you have no state income tax is a great thing, but it’s almost more of an…” I’m trying to think of the word, “More of an emotionally positive statement,” and he said, “While I hope it never goes away,” which by the way, it won’t go away and I can get into that, he was like, “It’s just more of a statement. It’s more of a way for the state to say to you, ‘Look, we’re not going to tax your hard work. There are other ways for states to tax you.'”

Ed Curtis:
That resonated with me because I’ve been here for so long, I don’t really realize what it’s like to fill out a state tax return anymore. It was always probably more of a hassle than anything, but yeah, I think it makes a statement and it really expresses more of a less state overreach. Look, politics and taxes are local, in my opinion, and local cities and municipalities tax their people, but the state, the federal government gets their fair share, so the states really need to find their way to make money and it shouldn’t be, in my opinion, again, taxing the income that the federal government’s already taxing.

Tom Wheelwright:
When you go out and you talk to companies, I mean, let’s look at the 800-pound gorilla, which is Tesla, right? They’re moving big into Texas. I’m curious. You don’t have to share anything confidential, but how much of an impact do you think that the whole business climate, including the tax system, had on their decision to move into Texas? I mean, they could’ve expanded there in California, right? That’s basically where they started. Why expand to a place like Texas? Basically, they went to Texas and Nevada, right, are their two big places they went. Oddly enough, no taxes in either state. What do you think framed their decision from that standpoint?

Ed Curtis:
Well, that’s a great example, a great case study, I believe, and we’ll obviously see how it plays out financially, but there were probably five or six major factors that I think made it attractive to Elon Musk and the organization and I think it played into the decision and taxes and incentives were part of it. But if you read what Elon wants to do with that gigafactory and how he wants to literally transform the Southeast part of Austin, an area that has the piece of land that he bought generated like $48,000 a year in taxes for the city, and now it’s obviously going to generate millions of dollars, and he is getting some abatements for that, but it’s literally transforming the Southeast part of Austin. Austin is very highly educated. We have U@UT, the University of Texas here. The average salary for the majority of the people here he’s hiring is going to be less than $50,000 a year, so there’s plenty of land to develop housing that’s affordable. He’s a big proponent of sustainability and environmental responsibility and he’s going to be building parks and, and lakes and things like that.

Ed Curtis:
I think, again, from when I see it, obviously, the numbers are a big part of it and we can get into that as well, but I think it’s really being a bigger part of the community, and I can tell you, one thing that Texas does very well from an economic development standpoint is that they are very aggressive in letting you know that “When you move here, we’re a partner.” I mean, he was meeting with community colleges that were looking to generate new curriculum to help meet the skills that he needs, so it was a true strategic partnership. I think money played a factor, the incentives played a factor. If you look at what Oklahoma, Tulsa, was offering him, I think their incentives may have even been higher, so I think that there are a number of reasons why he moved here.

Tom Wheelwright:
What do you say to states who say, “Well, we need money for infrastructure. We need money for schools,” and they look at the congestion in Austin, and they go, “Really? You’re going to add that many more jobs with the congestion that you have already?” What do you say to those states that are raising taxes? Arizona, just 80% tax increase for education, and California is looking at another 40% tax increase. What do you say to those states?

Ed Curtis:
Well, a big majority of how the state funds itself is through sales tax and our sales tax is six and a quarter at the state level, and then the city or community can add another 2% onto that, so eight and a quarter percent sales tax. It’s not the lowest in the country, it’s not the highest, and that’s the majority of what funds our state. Our local property taxes in Texas are high, and I’m sure you’ve heard that, and that is imposed by the city and the county. The state does not collect your property taxes, so between, excuse me, the state sales tax and your local community property tax, that’s the majority of what’s funding infrastructure, roads.

Ed Curtis:
That’s why population growth for us is good. That’s why Tesla hiring 5,000 people are good. They’re going to buy houses. They’re all going to pay property taxes. They’re all going to buy cars. It truly fuels the economy. It’s really an economy that pays for itself if our government is responsible. We have to balance our budget every two years in Texas, which a lot of states don’t have to do, so it’s a challenge for sure, but it is a true partnership where business and individuals and our state government talk openly and candidly about what we can fund, what we can’t fund, what we can afford, what we have to pay for.

Ed Curtis:
Then, of course, oil and gas revenues are a big part of our state and that we’ve learned our lesson several years ago when there were major fluctuations in oil and gas prices. We created a rainy day fund, which is essentially a savings account in the event we get hit again, so these are challenges that we’re facing, but it’s very transparent and we have to fix them.

Tom Wheelwright:
It almost sounds like you’re almost a supply-side version from a state standpoint if you look at supply-side economics, and okay, well, basically, you’re talking about a consumption tax only, not an income tax, so not a tax on labor, but a tax on spending, which, by the way, to me makes a whole lot of sense that you do a tax on spending because you can exempt the necessities and you can keep it from being too regressive and too much of a burden on poor on the poor and those people without the same types of income that other people might have.

Tom Wheelwright:
But you talk about this partnership. This is a very interesting to me because typically, in some states, you see the government fighting, and we’re seeing this now in Arizona, where I am, where you have the government on one hand and you actually have different factions of the government fighting for money and they’re almost like they’re fighting the business community. Arizona has been a very popular state economic development-wise. I think Governor Ducey has done a terrific job here economic development-wise, and yet, these guys came in and increased taxes by 80% through a popular vote. How does that partnership work and how do you keep that going in a state like Texas, where you had a lot of booms and busts over the years?

Ed Curtis:
Yeah. I think Texas has done a great job from a bi-partisan standpoint and really sticking to pro-business and pro-business can take on, it just seems like anybody can define pro-business in different ways. I think, look, Texas was not a red state forever, but when they were a blue state, they were still a pro-business state. If you look at a lot of the policies in Texas that we are passing, they’re pro-business. They encourage employers to freely innovate. I believe “taxes” and “regulations” should be in the same sentence. They’re not mutually exclusive items and it allows these companies to, again, generate these other ways that we can collect taxes and pay for things.

Ed Curtis:
Look, the political differences, I think in the United States, if you really boil down to pro-business policies, there’s a lot that the left and the right agree on and I think when you let outside social influences, everyone’s got their own opinion and they’re entitled to it, when they start getting mixed with pro-business, that’s when it gets muddy. Again, we put our arms around businesses here, and if anyone ever announces that they’re leaving, they’re going to get tackled, wherein another state, we talk to companies all the time that they’re calling the secretary of state, they’re calling the mayor’s office, and they’re not even calling. They’re calling and saying, “Hey, I’m leaving,” they don’t even get a return phone call. I think you’ve got to let these businesses know that you’re here for them, their success is your success, and if you start demonizing them, that relationship is not going to be good. It’s not going to be healthy.

Tom Wheelwright:
Hey, if you like financial education the way I do, you’re going to love Buck Joffrey’s podcast. Buck’s a friend of mine. He’s a client of mine. He’s a former board-certified surgeon and he’s turned into a real estate professional. He has this podcast that is geared towards high-paid professionals. That’s who he’s geared towards, so if you’re a high-paid professional, you’re going, “Look, I’d like to do something different with my money than what I’m doing. I’d like to get financially educated. I’d like to take control of my money and my life and my taxes,” I would love to recommend Buck Joffrey’s podcast, which is called Wealth Formula Podcast with Buck Joffrey. I hope you join Buck on this adventure of a lifetime.

Tom Wheelwright:
Let me ask you a very practical question from an entrepreneur side. If you were to list two or three factors that you think entrepreneurs, business owners ought to look at, or even investors ought to look at as to where they ought to invest, where they ought to have their business, from a political standpoint, what would you say are maybe the top two or three items that they ought to be looking for in a state?

Ed Curtis:
Wow. Well, these days, Texas is benefiting from this being close to your supply chain and your customer. Texas benefits both ways now. We’re centrally located. We’re close to the port. We’re right in the middle of the state. We’ve got great railways, great highways, and then we have a high population, so if you’re selling to consumers, your customers are here, so I would say number one is understand your supply chain and your customers and getting product out quickly to them immediately. I mean, Tom, people are buying things. If I don’t have my order within the same day, I’m mad, right?

Tom Wheelwright:
Right.

Ed Curtis:
That’s why Amazon is investing a lot in Texas, so being close to your customer and supply chain would be one. I think, really, understanding the way your local government and your state government approach business. Texas has a very unique economic development model where it’s very highly fragmented, so every city has their own economic development policy. When you look at, for example, the money that Tesla got, they got that from the city and the county, which had to be voted on by the people. It wasn’t voted on by the state.

Tom Wheelwright:
That’s an interesting one because Austin is known as a blue city, right?

Ed Curtis:
Yep.

Tom Wheelwright:
I mean, it’s a very liberal stronghold in the state of Texas, so how does a city like Austin that is growing and growing and growing, how are they making that happen? Even though they’ve got these, what seems to be contrary views, this very, really, politically-left viewpoint of the world, and yet, you’ve got really one of the strongest cities in the country from a growth standpoint.

Ed Curtis:
Perfect example of what I had mentioned before, that pro-business isn’t necessarily right or left. The Southeast part of Austin is not… There’s a big equity gap in Austin. Like I’d said before, highly educated. UT students never leave. They stay here, they make money. Again, I think our younger generation is more probably left-leaning or liberal because they have a bigger heart and I commend them for that, but when you look at the economics, I think the city council, and again, it was the city of Del Valley and the city of Austin, and of course, the state was involved in the event that they needed to close the deal. But they looked at that part of town and they said, “Look, $47,000 a year for thousands of people in Austin? That’s what we need.” That city, that school district is going to benefit from all those property taxes.

Ed Curtis:
Again, it’s looking at, go back to school and look at your Economics 101 book. It’s not liberal and it’s not conservative. It’s business. I think because, like I said, Elon approached it from a very environmentally-friendly standpoint, because the majority of the people that are taking these jobs will not need a college education, it really worked well for the city and I give city a lot of credit for it. They’ve been struggling with corporate relocations for a number of reasons, some of which are they’ve grown so quickly, there’s not a lot of room, but they have been battling with whether or not to financially incent companies to do it. I think it’s going to be a huge win for the city. I think it’s going to be huge win for the state. I think for the country, quite honestly.

Tom Wheelwright:
Let’s look at different sizes of the companies real quick. A big company like that, I mean, Tesla, they’re expanding, so they don’t have to move people to expand into Austin, Texas. Amazon’s the same way, right? They’re expanding so they can do that, but let’s take a smaller business. Let’s say you’ve got 50 or a hundred employees. How do you decide to pick up and leave? I mean, I literally, the day after Prop 208 passed in Arizona, I had half a dozen calls from clients saying, “Which state should I go to?” and I said, “Well, anywhere but California and you’re good and you’re better than Arizona now from a tax standpoint.” But how do you, actually? I mean, do you pick up and move your employees? Do you hire new employees? What are you seeing when you travel around and you’re seeing people migrate into Texas? Are they hiring Texans or are they bringing their employees with them?

Ed Curtis:
The number one reason why companies are relocating anywhere right now is talent. They just want to be closer to the talent. It’s cheaper and it’s easier to recruit the talent five miles away from your office than it is to relocate it. Even if you’re moving from California to relocate or from wherever, even if you’re relocating a hundred people or 50 people, you probably have to incent them somehow. They have to move, they have to pick up their life and move. When you come here, of course, you want to source the local talent here. But at the end of the day, you want the best people for the job.

Ed Curtis:
What makes Texas attractive for another reason is there are a lot of people here with talent. I’m not saying companies are saying, “Fine. I’ll just pick up and leave,” and saying, “Hey, here’s a memo. Whoever wants to come can come, but we’re leaving.” They’re not doing that. But in the past, the life or death of that relocation depended on how many people were moving, and if you couldn’t convince enough people to move to Texas because they still thought we were riding around on horses, you’d be in trouble, where now, I think there’s so much talent here that they move. They do a lot of assessment of the local talent and whatever they can’t bring with them, they hire here.

Ed Curtis:
I’m a big proponent of making sure that our children and our underserved as well are a part of this growth because when companies move here, they’re looking for talent, they’re looking for people. I’ve got kids, a lot of our customers have kids and they’re going to school, hopefully learning skills that these companies are going to employ in the years to come. We welcome people that are moving here, but again, we’ve got a big population. Our unemployment rate was very low prior to COVID. It’s still good, but we’ve got a lot of people here that we need to employ, so filling those jobs is important to us.

Tom Wheelwright:
I want to take a moment to tell you about Norada Real Estate. Are you having a hard time finding great investment properties? Unfortunately, the best deals are rarely found locally. Successful investing begins with the right properties in the right markets. Norada Real Estate Investments provides you everything you need to invest in some of the best deals around the country, everything from turnkey rental properties to mortgage financing to property management. Visit their website, to learn more and download your free copy of The Ultimate Guide to Passive Real Estate Investing at turnkeyrealestateinvesting.com, that’s turnkeyrealestateinvesting.com.

Tom Wheelwright:
One of the things I notice, I have a lot of business in Austin, pre-COVID, post-COVID. I go to Austin a lot, and of course, I went to school there at the University of Texas. What I notice is I notice the quality of conversation. It’s very innovative. It’s very progressive from the standpoint of new ideas, things like that. You don’t hear a lot of that in a lot of places, frankly. I mean, I don’t hear a lot of that. I mean, I love Phoenix, Arizona, but I don’t hear a lot of that kind of conversation here. It’s the kind of conversation I would expect to hear in Sydney, Australia or Manhattan, frankly, and so it’s really a unique situation where you’ve got that level of talent and that level of thought, and at the same time, you’ve got a business community and a business proposition. I think you have an advantage over a lot of places. I think, actually, Arizona could have that advantage and maybe gave that away with Prop 208, but we’ll see what happens. We’ll see just how important that seems to play into things.

Tom Wheelwright:
Final words: Any other thoughts that you have for business owners, entrepreneurs? What do we look for in that business community? What do employees care about? Am I going to have trouble with this if I pick up and move? What do you say to those business owners?

Ed Curtis:
Yeah, I think, absolutely, communicate your plan with your key employees. Actually, I wrote a book a couple of years ago and I interviewed about 19 CEOs who’ve all moved their companies here and I said, “Share your experiences and your stories so that other people that are thinking about moving here could learn from them,” and one of the interviews I had done was with the CEO of Toyota, and they had moved 4,000 people here back in, I believe it was 2014, ’14 or ’16. I should know that. I wrote the book, right? They went through a three-year process of letting their employees know that they are a big part of the relocation to Texas.

Ed Curtis:
I think a lot of it had to do with the culture of Japanese companies. They’re very loyal, they’re very transparent to their people. But they said to them, “Look, we are moving. Here’s why we’re moving. Here’s why we think it would be a good move for you. Come to Texas, take a visit, bring your family. Come back, let’s get in the boardroom. Let’s figure out if this is going to be a good situation for you. If it’s not, you stay and you could still work at the local office.” But in very few instances, I think they let people go. I don’t think they let anybody go, actually. Again, part of the Japanese culture.

Ed Curtis:
But from beginning to end, the percentage of people that actually moved was much greater than what they expected because they educated them on the process, and it makes for better citizens, quite honestly, because now they know why they’re moving. It’s not the companies, and I’m telling you this: Of all 19 companies I interviewed, CEOs I interviewed, taxes and incentives were a big part of it, but definitely not the only part of the decision. A lot of things were a big part of it and I think communicating that with your employees, particularly your key employees, you’ll be surprised how much more is involved than just taxes and money. That would be my parting gift or advice.

Tom Wheelwright:
No, I appreciate that, Ed. Taxes are a stimulus, right? The intention is to stimulate that consideration of your state, and it’s clearly not the only factor, should not be the only factor, but clearly, it plays a factor. The great thing is is that when you’re a US citizen, you’re taxing your worldwide income. That is not true when it comes to a state. When you’re in Texas, you’re taxed in Texas, you’re not taxed in Arizona, okay, just because you’re now in Texas, and so knowing that state taxes are becoming a bigger and bigger part of our finances as the tax rates go up, I mean, they’re going up all over, I mean, whether it’s sales tax, income tax, property tax, they are universally not going down anywhere quickly, so actually knowing that that’s a stimulus and looking at it from that standpoint, I think is great. But I think the whole business climate, I applaud what you guys are doing in Texas. Like I said, I’m a big fan. I learned two important things when I was University of Texas, and that’s how to say “Y’all,” but more importantly, that the plural of “y’all” is “All y’all.”

Ed Curtis:
All y’all. Yeah, I never understood that.

Tom Wheelwright:
I never knew that. I would never have known that had I not gone to school in Texas. I know the part of town where Tesla’s moving. It is in dire need of economic development and I applaud you guys for, and Tesla, frankly, for taking that project on, because that is a project and I know the road system’s going to be challenged as well. Congratulations on that. Again, Ed Cook, Why Texas, and again, I’m obviously prejudiced here. I love Texas, I love Arizona, but Texas has some uniqueness to it, and I hope you guys never lose that.

Ed Curtis:
Well, I appreciate it. I do, too.

Tom Wheelwright:
Well, again, thank you. Thank you again, Ed. Thank you, everybody, for listening and watching. Remember that taxes are a stimulus. They’re an incentive. They’re not the only reason you do something, okay, but when you start looking at it, what happens is you get, say, to a state like Texas that has all these other things to offer that you might never have considered had it not been the stimulus of the tax incentives, and so that’s why we say that taxes can make you rich and the less taxes you pay, the more money you make. I’ll see you next time.

Announcer:
You’ve been listening to the WealthAbility Show with Tom Wheelwright. Way more money, way less taxes. To learn more, go to wealthability.com.