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U.S. Steel wins tax breaks from one of America's poorest cities (reuters.com)
99 points by howard941 14 days ago | hide | past | web | favorite | 65 comments



>> U.S. Steel's 2018 profits shot up to $1.12 billion, from $387 million the previous year.

>> the city and state offered the firm a $47 million tax break package.

How is this different than the city being held hostage by the organization in question? There was a recent article about ExxonMobile being denied tax breaks by a small town in Louisiana[1], which was unusual enough to set off corporate alarm bells and resulted in much civic hand-wringing. I understand that cities and states want to be attractive places to do business. However, the ability for locations to offer company-specific tax breaks allows companies to pit cities against each other (cough Amazon) and avoid paying to support local services like schools, parks, police, etc.

Would we not be better off as a society if business-specific tax breaks were not an option? Wouldn't that 'level the playing field'? Wouldn't it decrease the incentive for local governments to gamble the city's financial future, placing bets on the whims of corporate boards? Can someone tell me what I'm missing?

[1] https://www.nytimes.com/2019/02/05/us/louisiana-itep-exxon-m...


One alternative: there are no tax breaks, the company has no reason to stay in the city and leaves, and the city is much worse off financially.

These kinds of tax breaks and incentives between cities create an interesting market that acts as a check against excessive taxation, similar to how consumers force competing companies to lower prices and improve products. In my opinion, the problem is when the policies very clearly benefit a small group of players (or one) and aren't accessible to the market as a whole (which is quite frequent). Some federal verbiage preventing such specialized tax exemptions would go a long way, forcing cities to compete on city-wide tax plans, rather than being able to buy one big company at the expense of smaller taxpayers that have less power to relocate or negotiate.


I believe this is called state-aid in the E.U and is forbidden. If the said state wants to provide a "tax break" it must provide it to everyone(i.e the whole industry)

It should be federally illegal here. Corporate welfare is theft.

I'm not familiar with any studies which confirm this assertion (i.e. that denying onerous tax-breaks causes big enterprises to leave town), but I am familiar with several which show the opposite to be true (i.e. companies depend on the labor pool, local environment, etc. and end up staying).

The inverse of your claim is also evident even in other dimensions. Both NYC and SV are extremely capital inefficient places to operate your business and scale up an organization relative to other locations. The high cost of living, commercial real estate, and upward adjusted compensation expectations, are a kind of implicit tax relative to other areas, but... that hasn't stopped nearly the entirety of the financial and tech markets from hunkering down in their respective locales for a whole variety of reasons which make that comparative nominal capital inefficiency assumed to be more than worth it by employers and investors.

Can you elaborate and/or substantiate your position?


The amount of location-agnostic industry (e.g. software) in Texas or the number of companies officially headquartered in Nevada are some obvious examples of the intuitive statement: the attractiveness of business policy affects where businesses organize on a macro scale. A recent example is Washington state -- already a finance averse state -- which added complex cryptocurrency broker dealer requirements in 2017 and overnight, most of the reputable exchanges serving US customers except Coinbase closed down operations in the state[0].

The world isn't black and white -- there are more factors in the world of business than just city tax policy. Weather, labor supply, image, capital supply, access to global trade, desirability for company decision makers, and other network effects explain NYC and SV. I hope that isn't controversial. For cities that have similar 'intangibles' going for them, I'd imagine city policy makes a big difference.

[0] https://www.geekwire.com/2017/new-bitcoin-regulations-shake-...


You're using "reputable cryptocurrency" exchanges as a counter-example?

Just trying to clarify.


> How is this different than the city being held hostage by the organization in question?

There is a huge difference between threatening to destroy someone else's property or life unless you get paid, and to offer something beneficial if you get paid.

To spell it out, the difference is that one is forced and the other is consensual.

> Would we not be better off as a society if business-specific tax breaks were not an option?

I'd agree with that, not least from an "equal treatment under the law" standpoint. That different companies pay different taxes depending on what deal they manage to negotiate with the government is a terrible principle. If it worked like that for regular people we'd all recognize it as corruption.


Many of us do negotiate our property taxes with the government by protesting their valuation of our home/property whenever it increases from one year to the next.

This is why the EU rules on state aid ban this practice.

And then we add the calls to set a minimum corporate tax rate to the mix and realize that the EU does this because Germany and France don't want businesses to go to Ireland instead of them.

Actually it's fine if businesses actually move to Ireland. The problem is not a guy running a machine shop in Antwerp moving it to Dublin. It's Apple claiming they should only pay Irish taxes on the profits of selling an iPhone developed in California, manufactured in China and sold in Italy because they have opened an office full of accountants in Ireland.

> Actually it's fine if businesses actually move to Ireland.

It's really not if you're France, Germany, Britain, Spain, Italy, or any other major EU economy.

France has seen zero per capita economic growth, inflation adjusted, since at least 2003. They've had to sit by and watch as Ireland gets richer and richer.

Ireland now has a GDP per capita over $70,000, among the highest of any nation. Soon it'll be 100% higher than France, Germany and Britain. There's no way they want to see that continue, it's a humiliation to them while they all struggle to generate any growth at all. In nominal terms, Britain's GDP per capita has seen zero growth since 2004; you can imagine how much worse the inflation adjusted figure is. In that time Ireland went from $47k to $70k per capita.

Since 1990, Ireland has gone from a GDP per capita on par with Spain (with France ~50% higher than Ireland), to where Ireland is now 150% higher than Spain and 84% higher than France. In economic terms, that's extraordinary.

Here's what that looks like:

https://i.imgur.com/q99EtMk.png

No chance the other powers in the EU don't want to restrain that.


Ireland has less than half the population of the Paris metro area, so while the difference in GDP per capita may be stark, the actual amount of money is a pittance relative to the European economy. The Irish economy is less than 2% of the EU total. 100 billion EUR of GDP growth in Ireland is not the cause of stagnation in economies that are 10x it's size.

The problem facing other European economies is not that large amounts of actual economic activity is moving to Ireland, it's that Ireland's tax rules let it suck out the tax revenue from work, production and sales that occur across Europe. Ireland isn't getting a £1bn new Google office - London is - but the UK will see no corporate tax revenue from the products those people develop.


> The problem facing other European economies is not that large amounts of actual economic activity is moving to Ireland, it's that Ireland's tax rules let it suck out the tax revenue from work, production and sales that occur across Europe.

They wouldn't if they would actually tax work, production and sales that occur in their jurisdiction. This whole game works by assigning a jurisdiction to "profit" independent of those things, when profit is an accounting fiction. Unlike customers or employees, it has no physical existence, so it's easy for companies to arrange for it to be wherever it's most advantageous.

If you want to tax companies for employing or selling to your people, you can perfectly well have a payroll tax or sales tax.


Did you generate that graph? If you did you should redo it with a logarithmic scale. The current linear scale makes it impossible to draw conclusions.

I rendered it in logarithmic scale, it looks terrible and should never be drawn that way. It visually obfuscates the point: the dramatic extent to which Ireland is now pulling away.

It's extremely easy to draw conclusions specifically because it's a linear chart about per capita economic output over a relatively short duration of time.

The conclusion is that Ireland has drastically outperformed all the other nations in the chart since 1990. I think it would be hard to read that chart any other way, it's extremely obvious. For example it's not difficult to see approximately where each nation starts out and where they end up. Nor is it difficult to see just how large the output gap has become between Ireland and the rest. Logarithmic would mess up the clear visual that Ireland is pulling away from everyone else.

The point of the chart, is to show how Ireland has gone from an underdog economy in the EU, to an affluent powerhouse, leaving the other major economies behind per capita.


> It visually obfuscates the point

Or, it shows that the point is incorrect.

> Logarithmic would mess up the clear visual that Ireland is pulling away from everyone else.

No, if you don't see Ireland pulling away from everyone else in a logarithmic chart then they are not pulling away.

If you only see that signal in a linear graph then you are misleading yourself by thinking that they are doing so.

> Nor is it difficult to see just how large the output gap has become between Ireland and the rest.

Exactly. The "large output gap" you see clearly does not exist if you don't see it on a logarithmic chart!

Please post it, let the data speak for itself. If there is a large gap we will see it, if not, we won't.


It's fine from your perspective, but put yourself in the shoes of politicians. It's their job to advocate for the best outcome for their constituents, which means that they would like all of the jobs to come to their constituents.

>It's Apple claiming they should only pay Irish taxes on the profits of selling an iPhone developed in California, manufactured in China and sold in Italy because they have opened an office full of accountants in Ireland.

They're already paying various amounts of taxes in all of those regions. VAT is paid where the person buys the product, for example. Income taxes are paid where the workers are.


It is all well and good for Ireland, or whoever, to try to attract companies to move jobs there. But that is not what is happening. One Infinite Loop isn't in Dublin. What Ireland is doing is allowing companies that have a purely administrative presence in Ireland to claim tax residency in spite of having far more operations and employees in London, Paris, NYC, San Francisco, Hong Kong and numerous other high-tax places.

This allows tech companies to have their cake and eat it too by enjoying low tax rates on their entire European income without actually moving their operations to that country. If Google had 50,000 software engineers in Dublin, that would be one thing. But no one can seriously claim that any significant part of the work that produces Google Search goes on in Ireland, yet that is exactly what happens on their financial statements while they open a billion-dollar new engineering office in London.

Companies are free to move wherever they wish. They should not be free to claim they are domiciled somewhere that they plainly are not.


> no one can seriously claim that any significant part of the work that produces Google Search goes on in Ireland

Hmm. Most of their European SREs who keep the service up and running are in Dublin, alongside most of their European customer support, European accountants, European legal team.

Arguably, they contribute quite a lot to the success of the service.

If they weren't there, would the service have made as much inroad compared to if they weren't.

So, arguably, their presence is _very_ material.

Also, you're missing the point of the single EU market.

Ultimately, it's a game of assignment and they chose to assign their sales(& IP?) to the country that was most attractive to them.


Apple includes the VAT in the selling price of its products. Therefore it isn't correct to view it as Apple paying the VAT. The purchaser pays the VAT. Apple just collects it and passes that payment along to the taxing authority. Apple also doesn't pay the income tax of its employees. What Apple pays its employees are expenses and and therefore are deducted from its income. Apple pays tax on profits and not on its business expenses.

it's somewhat pointless to look at who pays taxes at the surface level. depending on market power, the actual burden of the tax can shift dramatically between buyer and seller. it has almost nothing to do with who officially pays the tax. see https://en.wikipedia.org/wiki/Tax_incidence

I’m not an economist. It seems to me that while the VAT on Apple’s products affect the supply/demand for those products it is best to view the VAT as something paid by the consumer. Do you know if this is wrong? This is my intuition but since I’m not an economist my intuition doens’t count for much.

Income taxes aren’t paid by apple. Those are paid by the employees.

So change them so that they're paid by the employer instead, if you think that would make a big difference.

This glib response is quite naive and ignores second order implications.

How would we tax a corporation as the number of employees trends to 0?


If they hold property in your jurisdiction then you have property tax. If they sell to your people then you have VAT.

And if they have no activities in your country at all, what gives you a right to tax them?


Restrictions on state aid date from the treaty of Rome 1957 (https://www.nao.org.uk/decision-support-toolkit/annexes/anne... ), and Ireland joined the EU in 1973. It's not about targeting Ireland, it's about creating a genuinely level playing field while ending trade wars.

I see. I did not know that! Although, I would still argue my point because Ireland is just a recent example. Businesses naturally go to where there are other businesses. You have to somehow offer them a better deal for them to go elsewhere. If you can't do that then you get an urbanization-like situation for businesses, except they prefer bigger and richer cities over smaller cities.

The argument is that City A offers a discount deal for factory A to move there, so then City B has to offer a deal for factory B, and so on; whereas if neither of them had offered a deal they would both be better off. Classic prisoner's dilemma stuff.

There is a tendency for industry to congregate, but better ways need to be developed to deal with that than taxpayer bribery. Within countries, Germany is substantially better at doing this ("Mittelstand") than, say, the UK. And let's not forget that Germany wasn't always the strong country, they used to be "the sick man of Europe": https://www.ft.com/content/bd4c856e-6de7-11e7-b9c7-15af748b6...


>The argument is that City A offers a discount deal for factory A to move there, so then City B has to offer a deal for factory B, and so on; whereas if neither of them had offered a deal they would both be better off. Classic prisoner's dilemma stuff.

It's not a classic prisoner's dilemma, because you can play this game multiple times. It's an iterated prisoner's dilemma which can have a different outcome.

Furthermore, you're talking about this as though the government making the most amount of taxes is the most optimal scenario. There are plenty of economists that disagree with this notion, because this cost is passed on to the consumer and thus consumers are worse off.

In practice we don't actually see this happen either. In fact, this is how countries like Ireland managed to climb out of poverty.

>There is a tendency for industry to congregate, but better ways need to be developed to deal with that than taxpayer bribery.

Then I'd be happy to hear proposals that have a chance of working, but mostly what I see is countries like Germany happily taking advantage of the euro and brain drain, but they complain when other vignettes countries get some of the foreign businesses instead of them.

I don't think there are better solutions that work without the government regulating absolutely everything.

>Mittelstand

Please explain a bit more how this avoids companies from congregating in certain areas.


Yup, and then the moment German and French industries needed some help we started gettting talk about exempting them from state aid and anti-monopoly rules.

> Would we not be better off as a society if business-specific tax breaks were not an option? Wouldn't that 'level the playing field'? Wouldn't it decrease the incentive for local governments to gamble the city's financial future, placing bets on the whims of corporate boards? Can someone tell me what I'm missing?

The race to the bottom drives business taxes to zero, but it's not clear to me that's undesirable. Businesses are productive entities and create jobs. It's not clear to me that it's desirable to tax that. It makes more sense to simply raise taxes on the individuals who actually use those local services.


"Businesses are productive entities and create jobs."

I'm not sure of the meaning of that statement. Anybody can do something, perhaps dig a ditch and fill it in again, and file appropriate paperwork to be recognized as a company by the state. If that activity does not create more value for society than it destroys, society ought not to encourage it, even though it creates one or more "jobs".


Companies are more aligned towards creating value than Hole Inc because they have a profit motive, and presumably can only make money from voluntary transactions. The "creating jobs" thing makes sense when it's taken implicitly that the market will demand that any jobs you create will be worth something to someone.

Also, a hole-based stimulus package might actually help the town's economy, just like a big government project to paint murals on every wall would. So in a sense, towns are agnostic about the big picture. This shows the mindset of the politicians who are trying to create jobs: the value provided to them is the income that the employees make, which they can tax the spending of.

You don't talk about creating jobs if you are a customer that will be buying the products of the big plant. In fact, creating jobs is a negative (an expense) for every organization involved except for the local government. It is the customers of US steel that care about the importance of whatever it is that the jobs are doing, and the local government that cares about the existence of the jobs.


The problem is that the taxes are zero for specific businesses. If I want to open a business in New York, I'd get nowhere near as much of a tax break that Amazon got. I agree that business taxes should be low, but they should also be consistent.

OTOH businesses can also be drains on the local economy when all profit is shipped out of the community in which it’s made. If you have a factory pulling out $200mil a year in profits in your town, all it will do much of the time is not have layoffs, while the Wall Street investors get all the benefit.

The fact that Gary is such a poor town seems to confirm your observation. The workers don't seem to be seeing a share of the profits.

It's easy to craft policies that aren't business-specific per-se, but might as well be in effect.

"Any employer who commits to increasing their employee base within the city by 25,000 or more employees as measured from Jan 1, 2019 to Dec 31, 2021, shall be entitled to..."

"Any company in the oil and gas industry employing at least 500 workers within the town as of July 31, 2019 shall be entitled to..."

It would be a level playing field in one sense. If I were willing to commit to hiring 25K workers in NYC, I too would be eligible for the same tax break as Amazon...


It would be a poor judge who was bamboozled by such transparent attempts to twist the meaning of the law. Fortunately they are not computers or engineers.

Yet legislation crafted in such a way that it only benefits a single, known entity, is permissible. More at https://en.wikipedia.org/wiki/Private_bill#United_States

You just created tax breaks exclusively for large companies. I would prefer to give tax breaks to many small companies that employ a few people. The big guys should be able to stand on their own.

What your missing is that, thanks to globalization, those cities have to compete against cities in third world countries without nice things such as minimum wages or workers rights that tend to be viewed as burdens by most corporations. This is less an incentive to expand and more begging the company to stick to the status quo and not to bail out to Bangladesh the first chance the company gets

Not only is that an extremely overly simplistic look at how globalization actually works, but ignores that we can't just blame globalization while doing everything in our power to kneecap growing industries in favor of ones that are dying or in the process of being automated.

We should be adapting to the fact that a lot of these jobs will be automated in the near-future and/or the fact that most of these companies are more profitable than ever yet demand more and more from local and state governments.


Then the obvious solution is to apply a import tax on those companies, rather than trying to bribe companies for favors. Hell it could be called a 'human rights violation tax', specifically to fight the outsourcing of jobs to abusive foreign business or assemblies.

> "Company-specific tax breaks allows companies to pit cities against each other ... Would we not be better off as a society if ..?"

The real pressure does not come from cities and regions within the same country, but from abroad. Corporations have other options pretty much globally.


> tax breaks were not an option?

Cue to the hoards of flag hugging, chest beating, freedom loving American cults. They will argue that its "Federal Government Dictating terms" to them. They will argue its a "violation of free speech". Any such proposal would get drowned out in that chaos.

This is what happened when Austin enacted strict regulations for Uber/Lyft. But in that case they simply lobbied the Texas state government and overturned that city ordinance.


You missed an operative word "business specific". Most conservatives / right wingers / free marketers disdain business specific tax incentives - the common criticisms is that it opens up government to cronyism and allows the government to pick and choose winners.

The former governor on Florida is on record as saying that he won't ever make a deal with a specific company but it's very important for him that Florida be so favorable to businesses-writ-large that they don't have to make deals for any specific country because Florida should be the best state for any company to do business.


U.S. Steel is such a horrible company. Their coke plant in Clairton, PA (the setting of Deer Hunter if you haven't seen it, great movie...) continues to pump out pollution in violation of governmental environmental standards, including massive amounts of SO2, contributing to an astronomical asthma rate among children in Allegheny County (home of Pittsburgh). Unfortunately the city of Pittsburgh, the county, and Pennsylvania seem completely unwilling to take any action.


Western PA in general seems to be slipping back into (as I've been told it was like) the pollution of the 70's.

Even without the recent coke plant fire, Pittsburgh had a record worst year (since they've cleaned up in the past few decades at least) for days of high airborne particulates, warnings for those with asthma, etc.

The gas wells in the south west of the state used to pool their run off/waste water (which contains at least benzene IIRC) and wait for it to evaporate off. Those pools occasionally leaked though, and the pictures of dead fish in nearby ponds/streams looked bad. So now they mist the water and spray it into the air to be dispersed over a larger area. Last time I was home I saw my neighbor mowing his yard with a white surgical mask on.

Tap water has turned cloudy at best and isn't trusted by anyone, so everybody buys bottled water, which just increases pollution again.

Last I read though, Bayer was getting out of Pittsburgh, and BNYM was doing a bunch of layoffs. As much as they should, I can't imagine the local govts bringing down the hammer anytime soon. In leiu of tax breaks, Appalachia has a long history of selling the environment and locals health in exchange for business.


> "Western PA in general seems to be slipping back into (as I've been told it was like) the pollution of the 70's."

that is incorrect. air quality levels have improved significantly, just at a slower rate than the rest of the nation.

https://www.post-gazette.com/news/environment/2018/04/18/Pit...

> "Last time I was home I saw my neighbor mowing his yard with a white surgical mask on."

Maybe they have hey fever.

I grew up in the Pittsburgh area, I enjoyed breathing the air a lot more than in Philadelphia. I recently moved to Seattle, and I recently experienced worse air quality than any other place I have been with its 'summer smoke' days. Another thing mentioning about those bad 'air quality days' in the Pittsburgh area, they count pollen, and I am sure the farms in the region add to the air woes. In any event, jobs/work or the lack there of is a major concern for the area.


Your link is in reference to the state of the air reports. Which seem to collect data in 3 year periods. Looking at the most current report vs. the previous one Pittsburgh is (slightly) worse for particulates, going from 12.6 ug/m^3 to 12.8. The city also fell from 17th worst to 10th worst for fine particles[1].

Between the reports, it was the only county in PA to see an increase in unhealthy days for fine particle pollution[1]

25% of days in 2019 have been unsafe for people with asthma in the city[2]. Obviously the coke fire is a large part of that. Which by the accounts I've read at the least took their sweet time warning the public about the scale and type of pollutants that were released.

Obviously the city is not yet at 1970's level. I've spent some time on the rivers, and indicator species once lost have returned and are still there.

Your own link however contains the quote(from before the coke plant fire)

"Of all counties in the state, only Allegheny experienced an increase in the frequency of unhealthy days for particulate pollution, 6 to 8.5 — the highest in any county east of Utah."

--

For context with the neighbor, this is while the well ~200 yards from his house was spraying mist. From the last time I was at my parents' house it seemed to do that for about 10 minutes every 4 hours or so. It makes the air smell like old cabbage and is hard to schedule around. The whole street has shared their concerns with one another.

I love the place, and farms certainly add their own pollutants to the air and water, but the status of the air in Pittsburgh is pretty canonically "not good".

--

https://www.nextpittsburgh.com/latest-news/american-lung-ass...

https://www.ehn.org/pittsburgh-warned-stay-indoors-pollution...


The state of Indiana’s investment of $10 million in tax credits, along with $2 million in worker training grants, comes with the condition that U.S. Steel retain at least 3,875 jobs at Gary Works. But a state spokesperson declined comment on whether the company could still collect part of the incentives if the number of jobs falls below that threshold.

Why is a secret deal paid using public funds even legal? No one should have to rely on what a "state spokesman" says, the terms of the deal should be public so the public knows what they are paying for.


I feel like we need an amendment for the inverse of bills of attainders: Just like it's unconstitutional to pass laws that solely hurt a single individual/company, it should be illegal to pass laws solely to benefit a single individual/company.

Amazon does not deserve any breaks.

US Steel employs Unionized blue collar workers with a pretty decent entry level training program. The other steel companies are not unionized at all (looking at you AK Steel). While they don’t deserve these breaks either, this is night and day from Amazon.


I worked in the facility in question for a summer and it motivated me to study hard and become a developer. The place is Mordor and stands between the city of Gary and the prime lakefront property.

> Steel industry employment nationwide increased by 1,000 jobs to 83,400...

That is tiny. Why do governments keep propping up small industries like this and coal mining?


Because the manufacturing jobs they represent were the embodiment of the American dream. A man with relatively little education and a good work ethic could earn a good wage doing an honest day's work and still be home in time for dinner. It's not just the jobs that are disappearing, it's also a way of life.

because steel is necessary for war, and it's dangerous to rely on foreign nations to provide that

according to the Mattis, us military interests only account for about 3% of steel produced in the US, so I think we are pretty far from needing foreign nations to build ships, at least for the steel.

3% while not in a major war between superpowers

I'm not sure we'll need steel after a major war between super powers, we haven't had one in 70 years. Even if we need more steel, we can always ramp up production, or import steel, like we did in Iraq to up armor the HMMVW. We are making as much steel today as we did at the end of WW2, and there's no doubt we'll need less physical hardware in any future conflict. More domestic steel production now, doesn't appear to affect national security.

They bought up Stelco here in Hamilton hollowed it out and pilfered the client list, then dumped it.

Sounds like they're being every bit as ethical in the USA.


what a common agenda - claim to bring back jobs to an area if tax breaks are given, receive massive tax breaks, don't bring back jobs - only automation



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