U.S. state governments are jumping into the race to attract artificial intelligence (AI) companies and data centers despite opposition from civic groups. They are lowering regulatory barriers and luring companies with incentives. This is because they realized — following President Donald Trump's return to power — that jobs, rather than ideology, are what citizens care about.
For some time, California has been the center of the U.S. economy. In 2024, California's gross domestic product (GDP) reached $4.1 trillion, ranking fourth after the United States, China, and Germany. Following Intel's founding in 1968, Nvidia, Google, and Apple emerged in Silicon Valley, and as OpenAI and Anthropic established themselves in San Francisco, California's "Golden State" prosperity seemed set to continue.
But the mood shifted as moves emerged in California to impose a 5% wealth tax on billionaires with net assets of more than $1 billion. As federal tax cuts led to sharp reductions in spending on the medical system (Medicaid), the state began considering a wealth tax as an alternative revenue source. After enacting a state AI law last year and then moving to introduce a wealth tax, business leaders declared they would leave California.
Texas is seizing on California's turmoil as an opportunity. According to the Tax Foundation, a U.S. tax research institute, as of early this year California's individual income tax rate ranks first at up to 13.3%, while its corporate income tax rate ranks sixth at up to 8.84%. Texas, by contrast, has no corporate or individual income tax, instead securing revenue through property and sales taxes. To avoid the tax burden, companies and entrepreneurs have left California en masse for Texas.
A survey of Fortune 500 companies last week showed Texas with 57 headquarters, overtaking California (56) for the lead. Elon Musk, who leads Tesla and SpaceX, moved Tesla's headquarters from California to Texas. Samsung Electronics will also relocate its U.S. corporate headquarters from Englewood Cliffs, New Jersey, to Plano, Texas, by year's end.
Massachusetts in the East, home to Boston, has also joined the race amid reflection that it has failed to benefit from AI despite hosting top universities such as Harvard University and the Massachusetts Institute of Technology (MIT). Just as Mark Zuckerberg founded Facebook after dropping out of Harvard, the state has begun to take seriously the problem of talent it has nurtured leaving for California. Massachusetts is in contact with companies such as Anthropic to foster an AI biotechnology industry and is seeking to expand its venture capital (VC) market.
Colorado, the first state to push for AI legislation, has put the brakes on regulation. In the 2010s, Colorado was called "Silicon Mountain," with entrepreneurs flocking in and a startup born every 72 hours, but companies began leaving after the regulatory push. A state chamber of commerce survey found that since 2019, 98 companies abandoned plans to set up headquarters in Colorado or relocated elsewhere. As business leaders such as Musk pushed back strongly against a bill mandating measures to prevent the risk of user discrimination by AI companies, the state government ultimately revised the draft bill to ease the strength of the regulation.
Unlike the United States, where the AI transition is being seized as an opportunity to revive regional economies, competition among local governments is hard to find in South Korea. While reliance on national taxes is high and the population is heavily concentrated in the capital region, there is not even any attempt to build groundbreaking incentives. In the local elections that ended on the 3rd, similar campaign pledges — such as attracting AI data centers and building semiconductor clusters — poured out, but there were no concrete plans to give companies a reason to go to those regions.
Along with local governments' own efforts, the central government must also delegate authority. Even if a local government wants to offer incentives to companies, the practice of simply waiting for government fiscal support will not change as long as the central government holds the reins over taxation and building regulations. Competition spreading in the United States from California through Texas to Massachusetts is also because state governments hold authority. As symbolized by the Local Era Committee, which has been stalled for more than three months, the starting point is to first set right South Korea's decentralization, which has remained merely an election-season slogan.
