California on the Cusp
California voters will decide this year whether the state will remain the global center of technology innovation or begin a steady decline. Their choice for governor and on a key ballot initiative will make the difference.
The top three Democratic gubernatorial candidates enjoy strong backing from organized labor, including the state’s all-powerful public-employee unions. If elected, it’s nearly certain they’ll follow the union playbook of more taxes and regulations for the next four or even eight years.
Even worse is the 2026 Billionaire Tax Act, now gathering signatures to qualify for the November ballot. The measure would impose a one-time 5 percent excise tax on net worth exceeding $1 billion, with residency determined retroactively as of January 1, 2026 — a design so aggressive that it has already caused several of the state’s highest-profile job creators to relocate.
A union-aligned governor and a tax on innovation will put California on the trail already blazed by Massachusetts and New York. Those states remain wealthy from their legacy of innovation, but are sliding into irrelevance.
Massachusetts, which ranked near the bottom nationally for cost of doing business in 2025 and earned a “D+” grade for business friendliness from CNBC, imposed a 4 percent surtax on income above $1 million in 2022. A May 2025 Pioneer Institute study found Massachusetts is one of only four states that lost private-sector employment relative to pre-2020 levels while the rest of the country grew. The city of Boston, home to some of the most prestigious research institutions in the world, responded to Waymo’s interest in deploying autonomous vehicles by advancing a union-backed city council ordinance that would mandate a so-called “human safety operator” in every driverless vehicle — effectively blocking fully autonomous deployment. Waymo argued the proposal would make large-scale deployment infeasible. A state once synonymous with Route 128 and the minicomputer revolution is now seriously debating whether to constrain a technology already operating in Los Angeles and San Francisco, as well as Atlanta, Austin, and Miami.
New York tells a similar story. Texas surpassed New York in financial sector workforce in 2024, with 519,000 employees to New York’s 507,000. New York City’s financial services sector shed 8,400 jobs from January through August 2025 after adding jobs in the same period the prior year. Goldman Sachs is building a major campus in Dallas, and JPMorgan now employs more workers in Texas than in New York. On autonomous vehicles, Governor Kathy Hochul withdrew her robotaxi legalization proposal after failing to secure legislative support, halting broader commercial deployment even as other states move forward. Waymo’s next expansion cities are in states with more permissive regulatory regimes — Dallas, Houston, Nashville, and others governed by lawmakers who have not subordinated transportation policy to the union playbook.
The mechanism at work in both states is the same, and California voters should study it carefully. The political power of unions — especially government unions — exercised through campaign contributions, member mobilization, and the threat of legislative obstruction, has produced a regulatory environment that systematically favors incumbent workers over new technology, established industries over disruptive entrants, and the immediate interests of organized labor over the long-term competitiveness of the broader economy. This is not an argument against workers or wages. It is an observation about what happens when any special interest — labor unions included — acquires sufficient political leverage to shape policy in ways that protect its members at the expense of everyone else.
Nowhere is this more visible in California than in Los Angeles. The entertainment industry, once the state’s most globally distinctive economic asset, is suffering a historic contraction that cannot be explained by streaming disruption alone. Los Angeles County lost approximately 42,000 film and television jobs between 2022 and late 2024, dropping from about 142,000 workers to roughly 100,000. Television production in the Los Angeles area has fallen 58 percent from its 2021 peak, declining from 18,560 annual shoot days to 7,716 in 2024. On-location production fell a further 22 percent in the first quarter of 2025 alone. The FilmLA president said flatly: “Right now, we’ve just come out of the worst year on record, excluding COVID, in 2024 for the amount of on-location filming happening.”
Productions have moved to Georgia, the United Kingdom, Canada, and Australia — all offering a mix of lower costs and more flexible labor arrangements. California now ranks sixth globally for filming activity. The state’s film and television industry still feeds tens of billions of dollars in wages into California’s economy, but that number is under pressure.
The wealth tax threatens to drive out more high earners and damage the Bay Area’s tech sector. California lost roughly 216,000 residents to net domestic outmigration in 2024–25 — the largest loss in the country. IRS migration data suggest that those leaving the state report higher average incomes than those arriving, indicating a potential erosion of the tax base and greater demand for social services including Medi-Cal. In 2025 alone, Chevron, John Paul Mitchell Systems, and Realtor.com joined the exodus, following earlier departures by Tesla, Oracle, and others whose founders and CEOs now call Texas or Florida home.
California’s strength has never rested primarily on what Sacramento has done. It has rested on what Sacramento has allowed — a climate permissive enough for risk-taking, innovation, and the accumulation of the capital and talent necessary to do both. Despite his many flaws, Gov. Gavin Newsom largely protected California’s tech ecosystem, twice vetoing Teamster-backed legislation that would have required human drivers in autonomous vehicles.
The question before California voters in November is whether the next governor will exercise that same independence. The three leading Democratic candidates have collectively secured the endorsements of most major unions in the state, and the Teamsters have made explicit that their support comes with an expectation of protection against what they call “Big Tech’s assault on workers’ livelihoods” — a formulation that, if taken literally, would constrain the deployment of autonomous vehicles, AI-driven productivity tools, and the entire universe of labor-displacing innovation that Silicon Valley has spent 50 years building.
Pair any of those prospective governors with a successful wealth tax initiative, and California will have constructed exactly the combination of high taxes and anti-innovation regulatory posture that has Massachusetts and New York on a downward trajectory. The data from the states that have followed that path is not ambiguous. The data from the states that have refused to go down that road— Texas, Florida, Georgia, Tennessee — is equally clear. California in 2026 still has the universities, the talent networks, the risk capital, and the institutional memory to remain the world’s pre-eminent innovation economy. What it needs from Sacramento and from voters is the restraint to stay out of the way.
Marc Joffe is a Visiting Fellow at California Policy Center.