
Amazon HQ2 finalists should refuse tax breaks, say nearly 100 economists - champagnepapi
https://venturebeat.com/2018/01/30/amazon-hq2-finalists-should-refuse-tax-breaks-say-nearly-100-economists-professors/
======
jawns
What could be happening is:

* Amazon has already chosen its HQ2 city, for a variety of business-related factors that have nothing to do with tax incentives.

* But it would like tax incentives if it can get them.

* So it acts like it hasn't made up its mind and gets a bunch of potential suitors to woo it with tax incentives.

If this were a teen movie, the cities would eventually find out that Amazon
has been playing them. They would then team up to teach Amazon a lesson, and
hilarious hijinks would ensue.

Here in real life, it would be great if all of the finalist cities were to
band together and say, "We're withdrawing all tax incentives we previously
offered. Choose us for us, not for what tax money we're willing to sacrifice."

But a HUGE part of such a pact is that the cities need to find a way to punish
any city that doesn't join the agreement, such as with economic sanctions. I'm
not totally sure whether it would be possible to craft sanctions that might
deter defecting from the pact, especially with so much potential upside on the
line, but that's sort of what has to happen for the pact to work.

One other thing to consider, which is part of the economists' argument, is
that having the HQ2 city forgo millions or billions in taxes is ultimately bad
for Amazon. HQ2 is going to have employees who will have to live in that city,
and it is in their best interests to have well-funded public services.

~~~
pm90
I (and many of my programmer friends) believe this to be correct; and moreover
that city is Austin, Texas. There was basically no need for Austin to be a
finalist; I don't think the city was particularly interested in getting them
(we're already booming and most folks are already grumbling about increasing
property taxes and congestion etc.). They already have a pretty big presence
in Austin and are expanding rapidly. I'm 99% sure this was a cheap stunt to
get some kind of incentive/subsidy from the City. I'm actually very glad there
is little popular support for their proposal.

See [http://www.statesman.com/news/breaking-news/austin-
shortlist...](http://www.statesman.com/news/breaking-news/austin-shortlist-
for-amazon-second-headquarters/n1XY7VrIrzdhbihoZRtMIL/).

Quote: > Austin officials said in October that no local financial incentives
were included in the city's proposal for the Amazon project.

~~~
thinkloop
Doesn't this is a sense show the system is partially working? Austin, who
barely cares to get the HQ and has other attractive properties for tech
companies, is offering no incentives, while underdog cities who really want
the HQ but have less compelling properties are showing their willingness to
try harder. Classic story.

I get the race-to-the-bottom argument, but then what mechanisms can an
underdog city use to ever compete?

~~~
mikeash
Underdog cities could and should compete by improving their offering for
_everyone_ , rather than making one-off deals with individual companies.

~~~
notatoad
Sure, that sounds nice in theory, but probably isn't practical.

Short of serious corruption, most cities are about as nice as their current
tax base allows. Giving a company a tax break to incentivize that company to
move into their city allows them to grow their tax base and improve their city
for everybody. But it's not like cities are just sitting on potential
attractors for employers to move in.

~~~
astrodust
It's not about nice, it's about structure. What sorts of development are they
encouraging? Is the main street an endless series of the same chain
restaurants, or does it have a livable core? Are they encouraging rental
properties to make the it easier to live there? Are they promoting high-priced
condos instead to get quick hits of cash?

Policy is a highly subjective thing, but it also takes decades for it to make
an impact.

~~~
echaozh
This is capitalism isn't it. What should the government encourage? To let the
consumers and the producers decide for themselves.

~~~
astrodust
There's a difference between a well tended garden and one left to do whatever
it wants.

Consumers and producers don't always get to decide. If you live in a small
town that has a Wal-Mart then it's extremely difficult to compete directly
with that store if you're just some independent. People might like your
business, but you can't buy at the same volumes, you can't force the hand of
city council for tax breaks, you have almost no power in comparison.

Absent good governance then corporations decide everything and we get to
"decide" between the options they deign to give us.

------
grecy
Like I said in the other thread, it's sad this is even legal.

Here in Africa when Authorities allow obscenely rich people/companies to get
away without paying their legally-mandated share of taxes it's called
"bribery".

Apparently in America it's just "business".

Citizens should be protesting in the streets about this. Their educated,
healthcare and infrastructure sucks because of it.

~~~
djrogers
That’s a really simplistic and overly cynical view of what’s happening here.
It’s also completely incorrect - bribes are paid to people, there are no
mayors or city councils getting payoffs here...

Imagine you run a city where you tax businesses 1% of foo. For every dollar of
foo tax you collect form a business, you actually collect another $0.50 in
related taxes from company employees - buying lunch, staying in your hotels,
etc. Let’s call that your bar tax.

A new company wants to move in that earns 3x as much foo as any other business
in your town, but they are also looking at other towns that tax foo at 0.5% or
even don’t tax foo at all. You can choose to tell them to go elsewhere, or you
can give them an incentive - you’ll cut your foo tax to 0% for 10 years,
knowing that you’ll be collecting more bar tax with the company there than you
would with them not there.

At this point the calculation is simple - will having New Company in your city
cost you more than you’ll be getting in bar tax? And if so, might it still be
worth it in the long run to take those losses for 10 years until the foo tax
kicks back in?

If not, don’t do it. The point is, this is not clear cut either way.

~~~
grecy
Yes, yes I have heard this explanation a million times, but it's utter
nonsense.

The whole system was designed with what you said in mind. The company is
supposed to pay their taxes (foo) AND the city is supposed to collect the
taxes from employees (bar). The whole system needs everyone to contribute
their right amount so there is enough money for schools, health care, police,
roads, libraries, etc. etc.

Yes, Amazon's foo is very large, because they make a massive amount of
profit!! Also the bar they create will be very large, because they have a lot
of employees. The fact it's a large amount changes nothing. The city they are
in needs BOTH of those to function correctly. With all those massive buildings
and employees the city will need new schools, roads, more police, more
libraries, etc. etc.

Amazon get to use the roads of the town, the water infrastructure, the elec
infrastructure, the education, the police, etc. etc. to make their massive
profit.

Who do you expect to pay for all of that, other than Amazon through their foo
tax? That's precisely why the foo tax exists, and amazon get to avoid paying
it they can make massive profit without paying for the basic stuff - so now
the regular citizens need to!

The whole thing requires the full amount of foo+bar to pay for all of that
stuff.

But of course we all know America has terrible tax-payer funded services
compared to the other OECD countries.

~~~
maxerickson
If you go look at the "design" documents for US municipalities, the various
incorporation documents, you will see that they speak directly to abating
taxes to incentivize development. Here's an example from 1898 (not sure if
this charter is still in effect in the Baltimore):

[https://books.google.com/books?id=UVuiQ5HKgqoC&lpg=PA152&ots...](https://books.google.com/books?id=UVuiQ5HKgqoC&lpg=PA152&ots=Wh7Uhuo4dr&dq=baltimore%20charter%20incorporation&pg=PA25#v=onepage&q=baltimore%20charter%20incorporation&f=false)

So there are in fact legal mechanisms, deeply rooted in the laws of
municipalities. The stuff you are claiming is foundational to making the
system work is just wrong.

I didn't go digging for an example that would prove my point, I searched for a
city I recalled competing for the HQ2 and went with the second one I searched
(The first page of results for Austin didn't turn up an obvious document).

~~~
namelost
When the EU decided that Apple had not paid enough tax to Ireland, they made
Ireland collect the extra tax. Giving tax discounts to favoured corporations
is anti-social, and has long been punished at an international level (e.g. via
countervailing duties). The amount of double-think required to accept it at a
domestic level is astounding.

~~~
maxerickson
Sure, favoring particular businesses is ripe for corruption and difficult to
justify.

But the other poster is making an argument that tax abatement is somehow
against the system, something that is pretty obviously wrong.

They don't want to stick to arguing that it is anti-social or foolish or
whatever, they've decided that abating taxes is illegal (even though it is
legal) and that it is contrary to how cities are supposed to fund themselves
(even though it is written into the foundational documents of many
municipalities).

------
mi100hael
I'll be the one to voice disagreement and say I have no problem with cities
offering tax breaks for large development projects like this. The lasting
benefit to cities like Columbus, Indy, and Pitt would definitely be far more
than even a couple billion in tax breaks. You're talking a fundamental change
in direction from being a has-been manufacturing town to a national technology
leader. Doubling real-estate values for current residents. Enormous increases
in sales/property/income tax revenues. It's an investment with very real
returns for these places.

~~~
flipfloppity
Yeah, but the point is that Columbus, Indy, etc. don't stand a chance of
actually getting picked. They're just being used as leverage to get
Boston/NYC/DC to play ball.

~~~
ams6110
Don't know why they wouldn't. Indy is a major interstate highway and air
transport hub. FedEx has a big operation at Indianapolis. Columbus less so,
but it's less than an hour away and directly connected by interstate. Both
have affordable housing, generally low cost of living, and business-friendly
government.

~~~
afjl
Not the guy who you commented to, but I'm guessing he thinks it's due to the
talent pool they can recruit from by locating in a large metropolitan/suburban
area.

------
dcosson
This article is complete fluff, does anyone have sources of books or studies
(or even better blog posts) on the topic of city subsidies? There are a lot of
comments on here saying this is illegal, but it's not at all clear to me why
this is a bad idea.

Here in SF, as I understand it there were a lot of tax subsidies to bring
Twitter and other companies here into the city. Now the city is booming, and
although that has caused other problems like strain on infrastructure and
housing, these are solvable problems. They seem like much better problems to
have than a failing economy. (Not to mention, they have much deeper causes as
well that should have been addressed regardless, it's just that now it's
become quite urgent).

As another data point, there was a good Freakonomics podcast recently with the
governor of Rhode Island, and she basically claimed that tax incentives to
bring companies like GE into the state (in addition to other programs like job
training) were responsible for the economic turn-around they've seen. Over the
past few years they've gone from having one of the worst unemployment rates to
somewhere around average for the country.

Rather than knee-jerk oppose this competition, it seems like we should move
the conversation to "Okay, you're offering these tax incentives for Amazon.
Now you need to commit to building enough housing to meet their projected job
growth at HQ2 over the next decade, as well as a public transportation plan to
keep up with it."

~~~
tinymollusk
The cause and effect of tax breaks causing company migration isn't clearly
established. Further, you'd need to consider what the city's tax revenues
would have looked like without those companies HQ being located there.
Finally, (and this, to me is the least interesting argument, but people from
SF seem to love it): is the gentrification that ensued universally "good"?

------
thibautg
That’s a real Prisoner’s dilemma.
[https://en.wikipedia.org/wiki/Prisoner%27s_dilemma](https://en.wikipedia.org/wiki/Prisoner%27s_dilemma)

------
acd
One could argue that tax breaks are anti competitive in according to anti
compete laws.

If one big company gets lower tax than their competitors that is unfair
competition.

Here is a ruling against Boeing calling it "Prohibited subsidy"
[https://www.seattletimes.com/business/boeing-aerospace/in-
ne...](https://www.seattletimes.com/business/boeing-aerospace/in-new-case-wto-
expected-to-rule-against-states-tax-breaks-for-777x-plants/)

------
cratermoon
The New York Times covered in 2012 the negative effects on cities giving tax
breaks an incentives to corporations:
[http://www.nytimes.com/2012/12/02/us/how-local-taxpayers-
ban...](http://www.nytimes.com/2012/12/02/us/how-local-taxpayers-bankroll-
corporations.html?pagewanted=all)

------
nopinsight
Interestingly, Paddy Power currently has Boston at no.1 (2/1) followed by
Atlanta (5/1) and Austin (11/2). Most people would probably think that Atlanta
and Austin are better suited than Boston or at least neck-and-neck. The total
number of talent available from Boston-area universities might make a
difference though.

[http://www.paddypower.com/bet?action=go_event&category=SPECI...](http://www.paddypower.com/bet?action=go_event&category=SPECIALS&ev_class_id=45&ev_type_id=22711&ev_id=13023353)

~~~
Apocryphon
I am very skeptical that the people setting those odds are aware of the
specifics of American geography or economics, given that they had San Jose on
the board before the actual finalists were announced.

------
paulus_magnus2
There were discussions: is it time to break up google et.al [1], with no clean
indication of when someone is "too big". Obviously "too big" is when
politicians are compelled to be involved in investment decisions of the
company. Call it "too big to fail", "crony capitalism" or "market distorting
monopoly power".

[https://www.nytimes.com/2017/04/22/opinion/sunday/is-it-
time...](https://www.nytimes.com/2017/04/22/opinion/sunday/is-it-time-to-
break-up-google.html)

------
matt_s
The pull is the 50,000 jobs right? If that averages out to $100k/person then
that is approx $5B per year going into that local economy (minus Fed income
tax but some of that comes back at state level right?).

They aren't going to immediately post 50,000 jobs or relocate 50,000 people
right? So that $5B/year doesn't happen til they are all there. If any
incentives are to be there, it should be based on number of employees they
staff up in that area... they don't hit a number, they don't get incentives.

------
perseusprime11
I would like to see some numbers in support of their core argument-
“incentives do not alter business location decisions as much as is often
claimed and are less important than more fundamental location factors."
Bentonville, Arkansas is a great counterexample to this notion. Take a look at
their economy over years after Walmart set up their headquarters there.

From wikipedia: "The Northwest Arkansas economy was historically based upon
agriculture and poultry. In recent decades, NWA has seen rapid growth and
diversification of its economy based upon the three Fortune 500 companies
based there, Walmart, Tyson Foods, and J.B. Hunt, while also seeing a growing
University of Arkansas and cultural amenities sector. Although impacted by the
Great Recession, NWA's economy fared better than most peer metropolitan areas,
the state of Arkansas and the United States overall. Between 2007 and 2013,
the region saw unemployment rates significantly below those of peer regions
and the national average; while also seeing a 1% net growth of jobs. The NWA
gross domestic product grew 7.0% over the aforementioned time period, and
bankruptcies, building permits and per capita incomes are returning to pre-
Recession rates.[23]

The professional, education and health care sectors of the Northwest Arkansas
economy have been growing steadily since 2007. Between 2007 and 2013, the
region has seen a growth of 8,300 jobs in the region, with 6,100 added in
education and health professions and 4,300 jobs added in the leisure and
hospitality jobs related to the region's cultural amenities.[23] "

------
OliverJones
This kind of stuff has been going on for decades. It's perfectly legit for an
elected government to offer incentives to a company thinking of building a
plant. But governments get their pockets picked ALL THE TIME. It goes like
this:

Company: we want to build a new office / factory. Give us an incentive.

Elected official: yes yes yes. How about lower taxes?

Company: is that your final offer?

Elected official: we'll subsidize construction.

Company: Deal.

Months go by. Gripping and grinning. Official wins re-election for bringing in
"jobs." Company builds plant, hires some people...

Company: we're moving to Central America.

Elected official: but, but, but, you said....

Company: business is business, suckahs. We're outta here.

\------------------

A possible answer to the problem. Use a formula that gives companies financial
incentives to employ people, and terminates government liability when
companies stop employing people. It can be as generous as required. But it
depends on actual employment.

Company: New plant?

Elected official: yes yes yes. We will refund you 80% of the FICA withholding
tax you pay for hourly employees at your new location. We'll send you the
money within 30 days of you sending us proof you paid that tax, after each
payroll.

Company: Is that your final offer?

Elected offical: How about 95%?

------
CodeSheikh
Greedy realtors would want this to happen in their city as it will inflate
property values and fill their pockets deep. They certainly can influence city
officials (via campaign funds etc.) to throw tax incentives at Amazon which
will come from the pockets of tax payers. It would be interesting to have city
wide referendum where constituents get to vote on such matters.

~~~
gxs
|Greedy realtors

Wouldn't this apply to anyone who wants this in their town?

Greedy people who want more money in their paychecks. Greedy cities who want a
larger tax base. Greedy local business who want to benefit from consumers with
more money.

If you dig deep enough, everybody is "greedy."

In this case, if a realtor's incentive is aligned with the city and its
people, isn't it a good thing they are lobbying for the HQ to be in their
city?

------
jnordwick
> Worse, they divert funds that could be put to better use underwriting public
> services such as schools, housing programs, job training, and
> transportation, which are more effective ways to spur economic development.

This group of economists just claimed the government can grow better than
Amazon. This isn't some random company or a football stadium that produces
very little; this is one of the best performing, highest growth companies ever
created. I'd give the kitchen sink away to get a FAANG company in my district
if I were in charge.

This is a group of almost entirely liberal economist who've never seen a tax
they didn't like. Claiming the government can grow better than Amazon, and I
wonder where is the proof of this?

------
w0m
It's can be ~impossible to get proper funding for a new subway for existing
users, but if it brings 50k new _good_ jobs also? That subway can get approved
much more easily. Chicken/Egg scenario in many cases.

Re: specific company tax exemptions -

Pittsburgh as an example. Steel left, the city was in a depression. The city
then gave a sweet heart deal to UPMC, who then expanded massively and became
the states largest private employer. That coupled with good universities (Fore
and it's offspring) led to the tech revival the city is currently enjoying.

Does Pittsburgh need Amazon? Maybe, maybe not - but it could* be incredibly
helpful, time will tell.

------
amelius
A more general question: shouldn't such tax breaks simply be illegal?

And another question: aren't such tax breaks _already_ illegal, if you view
them as selective (anti-competitive) government subsidies?

~~~
afjl
I wouldn't argue that tax breaks should be "illegal", but rather be
proportional to the marginal utility that the company brings to the city (job
market, investment, spending, etc) and inversely proportional to the marginal
cost that the company brings to the city (infrastructure spending, housing,
over-burdening of existing city resources).

------
randyrand
what is so bad about governments competing with each other for citizens and
corporations?

gov competition is a good thing.

------
intrasight
I'm a big fan of Richard Florida (who spearheaded this), and I'm glad to see
many supporting it. But I think that it's more about messaging than having any
likelihood of getting cities to behave differently.

------
JustAnotherPat
NY/NYC offering tax breaks to them almost makes me vomit. The ONLY point of
trying to get them to open up in NYC is to get more tax money from them. It
should be as much as possible. NYC doesn't need another 50k people here and
however many barista jobs they will 'indirectly' create. We need better
infrastructure and housing first. Last time I checked, we don't even have
enough schools planned for all the people we have.

~~~
aggronn
I hope you'll reconsider this position. Its not a zero-sum game. More economic
development doesn't come at the expense of infrastructure/public services.
Economic development is what funds those things. The economics involved here
are well understood. Lack of schools and infrastructure exists because there
isn't enough money or political will, and adding economic development doesn't
exacerbate that. Its meant to be a solution for the problems you're concerned
about.

~~~
throwaway2048
its not a solution if taxes are getting dodged.

------
cma
If only the states could form some kind of "union" where they could avoid this
kind of thing.

------
monksy
This is one of the (many) reasons that I don't want to see them come to
chicago.

------
se30b
Any person or entity that manages to avoid paying taxes ends up doing a good
deed. All tax money is wasted on making society worse, and contributes to
growth of cancerous institutions that ultimately ONLY harm society.

~~~
therealdrag0
> "All tax money is wasted on making society worse" lol really? Then go live
> somewhere that has no functional government, like some undeveloped place in
> Africa (sorry a good specific example escapes me). There you can live your
> libertarian dream.

------
perseusprime11
Is there a list of the 20 finalists for HQ2 cities?

~~~
darkstar999
Yes, you could have found them just as quick by typing that into a search
engine!

~~~
perseusprime11
You are right! I could not find any when they announced but I should have
checked again. Here they are others:

\- Atlanta, GA \- Austin, TX \- Boston, MA \- Chicago, IL \- Columbus, OH \-
Dallas, TX \- Denver, CO \- Indianapolis, IN \- Los Angeles, CA \- Miami, FL
\- Montgomery County, MD \- Nashville, TN \- Newark, NJ \- New York City, NY
\- Northern Virginia, VA \- Philadelphia, PA \- Pittsburgh, PA \- Raleigh, NC
\- Toronto, ON \- Washington D.C.

------
purplezooey
It's a great idea. They should refuse them.

