Why not punish companies for creating jobs in an already crowded area? How many attractive, high-paying jobs in SF are tied to the city by any physical necessity? If companies want to avoid being punished, all they have to do is move their offices to a less crowded city.

Crowding is the whole point of cities: get lots of people and jobs together in a small space and let them benefit from each other. If lack of crowding is more important to someone than economic opportunity, they can go live in the countryside.

The benefits of centralization & economic opportunity for you but no one else isn't a stable equilibrium or a coherent policy goal. The only way you could plausibly achieve that over the long term is with border controls and immigration policy, something that's explicitly off the table for the interior of the United States per the Constitution.

If they move to a less-crowded city, and offer good jobs there, that city will become crowded, especially when former employees leave to start other companies in the same area.

That's how Silicon Valley became what it is. If a lot of tech companies moved to other cities, it would probably happen there, too.

It isn't crowded. SF is less dense then Brooklyn. The "city" of Palo Alto could easily use a few more stories.