Pragmatism, and inertia.

If you are in tech and in the Bay Area, you have access to talent, networking, if you are B2B - many potential customers. If you are having issues with mongodb and you wish to talk to the 10gen folks - in person - it's not a big deal.

As an employee - you gain a ton of mobility. If I lose my job, or just want a different one, I don't need to pick up my life and move. Whereas, if I join your startup in Ohio or Virginia, or somewhere else with lower taxes that is more friendly to business - I could find myself moving across many states again 6 months down the road if it doesn't work out.

Personally I'd love to move - I think the costs of living are ridiculous - San Francisco's a joke in many ways, but on the other hand, the Peninsula/South Bay are still expensive, but boring suburban strip malls with some nice hillsides. But every time I do a job search to see what's out there in other parts of the country, the only place I could find similar interesting work is Manhattan. (There are outliers, I'm speaking in generalities.)

Can tech business gradually move elsewhere? Sure. But with Google, Facebook, Apple, HP, Oracle, Stanford, Berkeley, etc, etc, here - it's a very uphill battle.

Agree. There's a plenty of other places in the US with much lower tax rates and the standard of living is just as high. I know Silicon Valley is a great place to network with like-minded people, but I've never understood the need to move and start a business in one of the most expensive places in the country.

It's not a question of Silicon Valley "absorbing" the tax.

Businesses and individuals will always act in their own self-interest. That has meant locating in California. I don't see this as changing that; the advantages of being in California are simply far too great.