From The New Yorker:
In November, Governor Andrew Cuomo and Mayor Bill de Blasio held a press conference in New York to announce a deal to bring a new Amazon headquarters to Queens. The event felt familiar: two ambitious politicians, side by side, explaining that a large company had promised to create thousands of jobs in the area in exchange for enormous tax breaks and other incentives, totalling almost three billion dollars, from the city and state. It was the kind of scene that has played out in dozens of American cities and towns. “For years, big corporations have been getting tax forgiveness and tax abatements, as well as, in many cases, money to train workers, and, in some cases, outright cash grants or subsidized loans,” David Cay Johnston, the author of “Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense (and Stick You with the Bill),” which explores corporate subsidies, told me recently. “The reality, unfortunately, is that this is going on all over the country.”
Opposition to the Amazon deal was instantaneous and fierce. Retail workers and union representatives organized protests; local and national politicians complained that one of the largest and richest companies in the world didn’t deserve billions in tax breaks and criticized its opposition to allowing its workers to unionize; people took to calling Amazon “Scamazon” on Twitter. “Our subways are crumbling, our children lack school seats, and too many of our neighbors lack adequate health care,” two of the most vocal critics, Michael Gianaris, a state senator, and Jimmy Van Bramer, a city councilman, said in a statement. “It is unfathomable that we would sign a $3 billion check to Amazon in the face of these challenges.” Increasingly, it began to look like the company would not be able to gain the legislative approvals that it needed for the deal to go through without making concessions, in spite of the support that it had from the mayor and the governor.
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Shortly after the decision became public, General Electric—which, three years ago, had been offered millions of dollars in tax breaks to move its headquarters from Connecticut to Boston—cancelled plans to build a new office tower and drastically reduced the number of employees it planned to hire, citing financial concerns. Foxconn, the Taiwanese technology manufacturer, has also suggested that it might not go through with a plan to construct a ten-billion-dollar manufacturing plant in Racine, Wisconsin, which it had promised to build with the help of more than four billion dollars from the state; the company said that it no longer made sense to manufacture liquid-crystal displays in Wisconsin due to the cost. (Two days later, after criticism, Foxconn said that it was still planning to move forward with the plant.) Neither company cited public protest as the reason for its decision to modify its plans, but each decision took place against a backdrop of rising popular anger about income inequality and the advantages that are often bestowed on large corporations.
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According to Johnston, state and municipal governments have extended publicly financed benefits to corporations for decades, but the practice didn’t really take off until the nineteen-nineties, when major chain stores and developers of sports stadiums began to demand large tax breaks and construction financing in exchange for promises to create jobs and revitalize neighborhoods. In recent years, dozens of companies, including General Motors, Boeing, and Intel, have taken advantage of such deals. (The New York Times calculated, in 2012, that states, counties, and cities are giving away more than eighty billion dollars a year in subsidies to large companies.) In many instances, though, the promised jobs and other benefits to the community never materialize or end up being more modest than was initially suggested in flashy press announcements.
Johnston explained how the process typically works: “You come in as Walmart or Home Depot or Lowes and say, ‘I want to build a store on that land, and the guy who owns it doesn’t want to sell it.’ ” In its eagerness to entice the company to build there, the local government might seize the land through eminent domain and then sell municipal bonds—essentially borrowing money—against the lease on the store. The chain then builds its store and parking lot and employs local people to work there. The bonds that the government issued, meanwhile, are repaid not by the company but through residents’ sales taxes. “When you check out of a Walmart that has this deal, and you pay eight dollars and change in sales tax, that money does not go to cops, library, schools, or parks,” Johnston told me. “That money goes to pay the bonds.” Approximately ninety per cent of Walmart distribution centers were built this way, according to Johnston. The situation is exacerbated by the fact that states, and even different municipalities within states, can compete with one another to offer the most generous subsidies and the lightest regulation, leading to an arms race of giveaways. “Often these things turn out to be complete frauds,” Johnston said. Multiple studies have shown that some short-term economic benefits may accrue to the community that has extended the tax breaks, but, over the long term, there is little positive benefit (and often none) because the practice saps money from public education and infrastructure, which is extremely harmful to a local economy.
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Amazon’s presence in New York might also have helped diversify the city’s economy, which is heavily dependent on the insurance, finance, and real-estate industries for well-paying jobs, by creating opportunities for tech workers. “Once you get an employer that has a large need for certain employment skills, you get other businesses that will also locate nearby,” Johnston said. “That’s why Rochester had not just Kodak but Bausch & Lomb and Xerox. It’s why Fleet Street was called Fleet Street or Madison Avenue called Madison Avenue. That’s why this had potential for other development.” Polls of locals in Queens showed that the majority actually supported the deal. The fact that Amazon didn’t fight harder to make it work suggests that the company is sensitive to criticism and also that it knows it can get an equally good deal in another city. “That they were willing to walk so quickly suggests they were not worried about replacing the deal somewhere else,” Johnston said.
Link to the rest at The New Yorker
PG says one of the benefits of allowing states to make many decisions by themselves and pursue their own way of doing things is that others can see the impact of various financial and tax strategies on the state’s economic well-being.
He has previously linked to stories about the impact of higher tax rates and costs of living on the outmigration of one state’s residents to places with lower taxes and costs.
Differing state policies and programs are most definitely a feature and not a bug.