PEOPLE’S REPUBLIC OF CALIFORNIA

It’s no secret that the Las Vegas Strip derives approximately 30% of its visitation from California. Given the sorry state of the California economy, this exposure will be yet another drag on the Strip. That’s the obvious call. The less obvious and more interesting call is what happens to population growth in Nevada when the big state next store craps the bed?

Let me pose that question a different way. Would you choose to live in a state with a higher unemployment rate, a 25% higher cost of living, a higher sales tax, and a state income tax rate of 9.3%? Or would you rather live in a bordering state with no state income tax? That is the alternative facing California residents who are likely to face even higher taxes as soon as April to balance the state budget in the coming years.

If you run a small business, or any business for that matter, it may make sense to forgo that 8.84% state corporate income tax and pay zero by relocating to Nevada. I’m sure many of your employees would appreciate the higher take home pay. The economic differentials between the two states are highlighted in the table below.

While Nevada has its own budget issues, it remains in a good spot to capitalize on California’s demise. I would never put it past government to ruin a good thing, but Nevada has a history of pro-growth, somewhat libertarian government and hopefully that will last. A continued low tax environment and a favorable climate should keep them coming. Unless the Nevada state government pulls a California (i.e. shoots itself in the foot), the Las Vegas locals market will retain a pretty unique characteristic among gaming markets: population growth. BYD looks to be the primary beneficiary.

When times get tough where would you choose to live?

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