A Blog by Jonathan Low

 

Nov 13, 2017

Congratulations! Amazon Didn't Choose Your City

In calculating the cost-benefit equation of attracting Amazon, assume that you are the denominator. JL


Payton Alexander reports in Investor's Business Daily:

It's hard to imagine a company less in need of subsidies than Amazon.With $136 billion in annual revenue and a market capitalization of nearly half a trillion dollars, the online behemoth is one of the most valuable companies in the world. Wherever Amazon lands, the taxpayers of the winning city are going to pick up the tab. When policymakers carve out special deals for big corporations, everyone else is forced to shoulder a greater share of the tax burden.
Last month Amazon announced its intention to construct a full-sized second headquarters in a major American city. With this second headquarters comes the promise of thousands of jobs, billions in investment, and boosted economic growth. The catch? Amazon won't do it without hefty subsidies from the taxpayers.
As one might expect, cities have been falling all over themselves for the opportunity to be the belle of Amazon's ball. Cities such as Memphis, Tenn., Philadelphia, Chula Vista, Calif., and Worcester, Mass., have already promised billions of dollars in subsidies as well as land for Amazon's new headquarters. Stonecrest, Ga., even offered to give away 345 acres of its land and change the name to Amazon if the tech titan moves there.
It's hard to imagine a company less in need of subsidies than Amazon.With $136 billion in annual revenue and a market capitalization of nearly half a trillion dollars, the online behemoth is one of the most valuable companies in the world. The fact that it would be so brazen about initiating a public contest in search of the best incentive package should be troubling to both taxpayers and policymakers. The company is not asking for needed help. It's inviting city and state governments to a race to the bottom.
Fortunately, some cities have done their homework and see through Amazon's tactics. They know that subsidies to specific companies rarely pay off in the long run. A friendly business climate overall is much more effective. Officials in San Antonio and San Jose, for example, have already staked out their opposition to incentives.
"We've long been impressed by Amazon and its bold view of the future," wrote San Antonio Mayor Ron Nirenberg and Bexar County Judge Nelson Wolff in an Oct. 11 letter. "Given this, it's hard to imagine that a forward-thinking company like Amazon hasn't already selected its preferred location. And, if that's the case, then this public process is, intentionally or not, creating a bidding war among states and cities. Sure, we have a competitive tool kit of incentives, but blindly giving away the farm isn't our style."
Not everyone grasps that simple message.
The Chicago Tribune editorial board gushed over the prospects of Amazon's relocation to the Windy City, arguing that the tens of thousands of new jobs promised by the company would be akin to having a slice of Silicon Valley on the shores of Lake Michigan.
Perhaps the editorial board has forgotten another big-name deal that didn't turn out as promised. Boeing arrived with its corporate headquarters and 400 employees in 2001, compared with the 1,000 it employed at its former headquarters in Seattle. Fifteen years later, its Chicago head count is up to roughly 560.
If Amazon chooses another city for its second headquarters, Chicagoans should count themselves lucky. They're getting off easy as the city again faces a massive budget shortfall, without dishing out millions more to Amazon.
Wherever Amazon lands, the taxpayers of the winning city are going to pick up the tab. When policymakers carve out special deals for big corporations, everyone else is forced to shoulder a greater share of the tax burden.
Instead of relying on incentives to attract business, state and local leaders should reform their tax codes to create a level playing field. Large corporations shouldn't be able to twist the tax code to avoid paying the required rate, and small businesses should be able to navigate the code without paying a fortune to tax lawyers. Tax reform to make the code simpler, more efficient, more predictable, and more equitable, without adding new burdens, is the most reliable recipe for boosting economic growth and investment. Bidding wars for corporate welfare are not.

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