In a crashing finale to its corporate headquarters search saga, Amazon announced that it is withdrawing from its commitment to New York. Politicians have responded with mixed reactions, with some hailing the decision as a victory for the middle-class locals who came out in droves against the deal proposed by Mayor Bill de Blasio and Governor Andrew Cuomo. The deal, which was comprised of more than $3 billion in tax incentives for the company, reignited the debate over whether immediate incentives for large corporates were justified by projected taxes down the road. Amazon promised to bring over 25,000 news jobs to the city, as well as additional investment in local infrastructure and school programs. However, the agreement quickly became a political hot-button issue. Many on the left saw it as a giveaway to a multi-billion-dollar corporation when subways lines break down on what feels like a daily basis. Those on the right chided the government for falling prey to crony capitalism. It seemed to be one of the few times that both sides could agree on something.
Activists and federal representatives were nearly universal in their condemnation of Amazon’s benefits under the proposed deal. According to The New York Times, there was fierce opposition from “lawmakers, progressive activists and union leaders, who contended that a tech giant did not deserve nearly $3 billion in government incentives.” Many critics have argued that Amazon’s reluctance to abide by the city’s directives with respect to unions, zoning, and taxes was a symptom of the larger failures of capitalism to contribute to local communities. New York Council Speaker Corey Johnson released a statement that called for a conversation on “vulture capitalism and where our tax dollars are best spent,” and House Freshman Alexandria Ocasio-Cortez derided the company’s stance on unions and worker treatment.
But Amazon’s original decision to accept New York’s proposed tax subsidies is not an indication of the horrors of corporate greed. Like so many recent issues surrounding the supposed failures of capitalism, the outcome was merely a symptom of a larger problem that commentators on both the left and right seem to skirt but never actually address. The question isn’t whether companies should be allowed to request bids for their business from states across the country, or whether states should respond with generous terms. Rather, the proper question is why it’s necessary for states to bid for a company’s business and provide incentives for them to move or grow their worker populations in a new area in the first place. Framed this way, it becomes clear that Amazon was looking not just for tax incentives but a business-friendly climate; the tax subsidies were merely icing on the cake. Why would it move to the city in which politicians, activists, and unions were constantly increasing their expectations of the services the company should provide?
At first glance, the entire situation oozes of a company’s attempts to squeeze the most out of a host city. Although the negotiations were held behind closed doors, details of various competing bids leaked: Pittsburgh offered $9.7 billion; New Jersey was happy to give $7 billion. New York’s package was comparatively small at a measly $3 billion, but it included other incentives such as streamlined development approvals and positive political reception in the Big Apple. While the states fought among each other to provide the most generous package, Amazon sat high above the masses ready to give the thumbs up or thumbs down. It’s hard to feel sympathy for an emperor, especially when he stands to benefit economically from the gladiator’s efforts.
When politicians complicate local tax structures and vocally resent large businesses (or go even further to suggest that property in the city should be appropriated by the government), companies, both inside and outside of the state, begin to weigh their options. A city that increases the burden or engages in anti-business rhetoric looks substantially less favorable in the expansion calculus. Most (although not all) politicians recognize this; and in an effort to make their cities look more palatable, state governments will often offer incentives to entice companies to bring in their lucrative tax base. However, these packages are a tacit admission that local policies cannot compete with those of other cities on their merits. Andrew Cuomo suggested as much when he said, “God forbid the rich leave.”
And thus, the problem becomes apparent: states need to entice companies to come to their states, because they wouldn’t come otherwise. High taxes and excessive burdens placed on businesses do not make for a palatable environment. When a company as large as Amazon, or in a similarly controversial example from August of last year, Apple’s supplier Foxconn, asks states to bid for their business, they will fall head over heels to meet and exceed the company’s expectations. That any state would also willingly engage in secret negotiations is a testament to the lengths governments will go to appease taxpayers.
By raising taxes and allowing activists and unions to dominate the conversation, state governments are digging the political holes in which they are now finding themselves. That Amazon withdrew from the deal is not a victory for workers as Ms. Ocasio-Cortez suggests, but a failure on behalf of the state to come to terms with its own economic reality. For those that complain that New York gave Amazon nearly $3 billion in incentives, it is clear that Governor Cuomo and Mayor de Blasio felt that they had no other means to convince the company to develop in the city. That they are sticking by the deal in the face of local opposition is laudable, but it also represents an unwillingness to confront the detrimental policies that made it necessary for Amazon to require a bid from New York in the first place. Pro-business policies would tilt the equation in favor of the states: rather than politicians placating companies, the latter would come rushing to please the former. We’re seeing the negative effects of anti-business policies in states like New York and New Jersey, both of which are seeing net outflows of tax-paying residents.
That Amazon required states to bid for its business is no fault of capitalism. It is a failure of some state governments to recognize that anti-business rhetoric and policies force them to engage in these bidding wars. If activists and representatives don’t want to submit to companies in a winner-take-all competition, then they should consider making their policies competitive for all businesses. New York would not have needed to offer any financial incentives if the company saw that the city would help it thrive. Amazon would still have paid tax revenue, and, more likely than not, other tech startups would have followed, growing the taxable population even further. Capitalist policies would achieve the same goals politicians in New York claim to support
It is important to note that advocating for capitalist governance is not contrary to the positions taken by activists of both the left and the right’s respective political ideologies. While it might seem that this set of policies would be a capitulation to large companies to the detriment of workers, the reality is that large companies like Amazon need workers to thrive. Under a better regulatory scheme, the government would not need to provide incentives for any company, large or small, to come to the city. As businesses saw the benefits of living and growing in New York, they would expand into the city and invest in the community by hiring locals. The result would increase the number of available jobs, and the resulting taxes would increase government coffers that could then be used to solve many of the problems that are all-too-common in New York, including the rise in homelessness, the decrepit state of low-income housing, and the derelict subway system. There would be no massive corporate giveaways that divert precious funds from important projects, and no crony capitalism for the government to choose winners. Amazon would not have required a bid from the city to build a second headquarters there.
In the end, New York does not want to drive away jobs. It does not want to drive away innovation, or even the country’s massive corporations. Rather, New Yorkers wanted to end government giveaways and entice companies by giving them a chance to compete without government subsidies. It wanted corporations to contribute to their communities and pay workers fairly. Politicians should recognize that they could have avoided this entire fiasco by working with the business community from the beginning, and that this is their chance to stem the outflow of businesses and residents. New York should be a business-friendly city; and if it can assume its historic place at the center of the American economy, companies large and small will once again flock to the Greatest City in the World. Bidding war or not.
Chris Sabaitis works in finance and is a grad student in mechanical engineering at Columbia University. You can follow him on Twitter at @ChrisSabaitis.
Feature photo by Sundry Photography / Shutterstock.
I’m not sure about this but it sounds like the author is saying that the giveaways should already be in place so that big corporations don’t even need to ask for them. That transnational corporations are mobile sure is a problem tho. I understand that Amazon’s real tax rate is about 3%. Dunno, maybe corporate taxes should be abolished entirely and replaced with sales tax on their products.
@Ray Andrew’s
I think that the author is trying to say that when the tax and regulatory environment becomes too inimical to business that cities get forced into these bidding wars of givebacks. He didn’t really touch on what causes the high taxes and extensive regulation rather he just pointed out that when you have them businesses don’t want to be there. Which makes sense since they are run for profit and thus don’t want to go where they won’t profit.
@Ray Andrew’s
I accidentally left out the part where unstable and/or adversarial political landscapes are also a disincentive. You wouldn’t want to buy a house in a place where they might raise property taxes by twenty percent the following year. The same goes for a business which wouldn’t want to invest in a new office where their tax rate might suddenly shoot up.
@Stoic Realist
That’s fair. To tell the truth I was wondering how ‘good’ it would be to chase away a very prominent business. There is something very broken indeed when jobs are chased away and the left considers that a triumph. We can’t all be grievance professionals, someone has to do something that actually generates income.
Ray, the problem stems from the misconception that lower tax rates are “giveaways.” Taking less of someone’s money isn’t the same as giving them money. It is the left’s inability to understand this that lead people like AOC to nonsensical statements about the government “saving money.”
No Amazon means no taxes collected on their business, property, or on their employees’ salaries. New York lost money and jobs because the let economic illiterates take the lead.
Not to say the crony capitalism is okay! I hope you consider voting for Maxime Bernier, since his is the only party that opposes corporate welfare and wants to build a business-friendly tax and regulatory scheme!
Socialists like AOC would rather have all of nothing that only part of something.
I might, if I wanted the house, but I would only be willing to buy it at a greatly reduced price. (I live in Chicago, where a 40% property tax increase is being discussed, and housing prices are soft.) The tax abatements are a form of price discount.
That would be extremely regressive, as relying solely on a sales tax would shift the entire tax burden from the corporations to the struggling poor working-class and middle-class consumers.
I agree, however, that the author should have given examples of business-friendly policies that would not be total giveaways before the fact, and that would take into account the interests and rights of the employees and the community. The author was vague on that point.
It’s deceptive language to call these giveaways. NYC wasn’t going to give Amazon a check for $3bil. They (NYC) saw Amazon generating a tax inflow to them of $30bil and said they’d reduce that tax bill by 10%. Framing 27bil in taxes/fees versus 30bil in taxes/fees as a “giveaway” plays into the language of those who act like all money belongs to the government.
Thanks. That puts it in a slightly different perspective.
Don’t worry Ray, your misunderstanding of how tax breaks work is widely shared by Leftist politicians everywhere. You see they believe that all earned income belongs to government, and if you behave yourself they will allow you to keep some of what you earned for yourself.
@ E. Olson
Twat!
Amin – you snappy retorts continue to amaze.
You do add nuance to the discussion Amin. One always sees the problem with more clarity after reading one of your posts.
@ E. Olson
Appropriate response to the utter drivel you post.
@ Ray Andrews
Why thank you, my dear! I didn’t know you were such a fan. A signed photo is on its way.
@E. Olson
Just the comments that have been added here since my own comment have me changing my vote on this — mind, I was more or less hung to begin with. But I do still sympathize with the ordinary working people in SF who can no longer afford to put a roof over their heads. As always I’m looking for some sort of decent way of having our silicon valley cake without throwing regular folks onto the sidewalk. The situation here in Vancouver is just about as bad. Working people can now no longer afford an apartment of their own, they double or triple up and what used to be single family homes are now bunk houses with 20 people in them.
“But I do still sympathize with the ordinary working people in SF who can no longer afford to put a roof over their heads.”
SF has the most expensive housing in the nation because restrictive zoning laws make it nearly impossible to build new housing. This problem is not unique to SF. When demand increases, you increase supply. When zoning laws choke new supply, prices sky rocket.
It’s just semantics. It’s still money that the state is using to bribe Amazon, however it’s remitted.
Actually, when you realize it’s a reduced tax — that’s the reason why many pols (both sides, but typically Left) demonize it. A locality that has to offer more in tax breaks is compensating for either higher-than-typical tax rates (you know, that old lower taxes encourages growth argument some pols hate) OR using that lure to offset some other regulatory charges.
The devilish detail in what the author is proposing is the whipping effect that direct competition without incentives creates. If a geographic area were not offering any incentives then the only options is to make broad changes like a reduction in tax rate for all; however, that would have tremendous negative impacts on the government budget. You can either give a targeted, 10% reduction to 1 company or a 0.025% reduction to all, for example, which wouldn’t make you competitive to new business but is all you could bear. The reality is that not all jurisdications are equivalent which is the problem with central planning. The infrastructure maintenance in a big metropolitan area like NYC is substantially higher than in suburban or rural areas simply due to nature of infrastructure/population density. Replacing a water main in rural/suburbs, you dig up a yard. Replacing in NYC is notably more complex and costly. Want fiber internet? In suburbs/rural you might use a trench digger or just string on a pole alongside the road…in a city, you have to work like a dwarf in D&D in the tunnels and catwalks, feeding through conduits that exist or laying new ones.
Bill – yes NY is an expensive place to build infrastructure, but Leftist regulations and government protected union monopolies make it even more so. Subway construction is far cheaper in other expensive places such as London or Paris than in NYC (and other big US cities).
https://ny.curbed.com/2017/12/29/16829746/mta-nyc-subway-construction-costs-investigation
A discount on sky high taxes is a bribe? That’s pretzel logic.
No, the freak out is because governments continue to deal with the donor class and special interests. Tax laws should be set so all can see and have the same. The idea that you negotiate a tax break is a crime. Government can set taxes and zoning regulations, but otherwise must treat all the same with respect to those if you believe in Equal Protection under the law.
No, it is in fact a giveaway/subsidy. You are confusing a “tax break” which is selective, with a tax cut, which is across the board. An individualized tax break is identical to a straight subsidy.
Consider 3 people: A,B,C, that each make 100k. The tax rate is an effective rate of 20%, so they are currently paying 20k in taxes. In scenario 1, B is given a “tax break” and so is only taxed at 15%. B now pays 15K in taxes. In scenario 2, the tax rate stays the same, but B is given a subsidy by the government of 5K. These scenarios are identical in all respects. In both B pays 5K less to gov. In both gov. collects 55k in revenue.
You could likewise argue in this example that there is no “giveaway” of 5K to B, but rather the government has collected a net of 15K from B. The point is one of fairness: if one is exempted from a tax rate that generally applies to everyone, this is not fair.
@JT – the difference is that in real life, A, B, and C, don’t each make equal amounts. So your example is moot. Amazon had $72bn in revenue in 2018 – that means that wherever they go, they have leverage because of how much they would contribute in taxes, jobs, spending, etc.
The tax system should not play favorites. Playing favorites encourages individuals and corporations to lobby to become a member of the favored class. Playing favorites also allows the government to divide and conquer. Why object to high tax rates if someone else is paying? Higher tax rates are need because playing favorites shrinks the tax base. Playing favorites allows politicians to create constituencies. In order for the law to be respected, it must treat all persons equally; other wise people will lobby and jockey to become those who are favored.
Playing favorites is highly profitable for politicians and industry. A generous campaign contribution, a highly paid speech, a big contribution to a political foundation, free rides on corporate jets, well-paid post-political job offers, etc. are what the political class expects to receive in exchange for corporate tax breaks, business friendly regulations, speedy zoning permissions, etc. If every company got the same good deal there would be no competitive advantages built of political favoritism, and no reason for companies to persuade (aka bribe) politicians for special deals. The bigger the government, the worse the problem gets, which is why political corruption is a way of life in Chicago and New York, but is seldom seen in South Dakota and Montana.
@E. Olson
Yup. As @Farris says, special tax rates for special friends is corrupt ad ovo. I think of that ruling the other time, where the EU forced Ireland to tax who was it? at a decent rate and not try to play ‘race to the bottom’. That should be illegal and fixing it might be all the socialism we need.
Yes, equal protection under the law suggests government can set taxes and zoning, but it should apply the same to all. Deal-making in taxation is corruption and shows special interests are more important than liberty and fair governance.
No, the incentives for businesses to move to a particular location do not really work. (https://www.citylab.com/life/2017/03/business-tax-incentives-waste/518754/) It’s only the perception that they work that matters. What an amazing coincidence that Amazon moved into the two most logical locations, right? Does anybody think there was a chance in hell they were going to build another headquarters in Arkansas or Alabama? Of course not. It’s smart business to entice local communities to pay you money to move, but it only works if they think you may not actually do so. It’s a scam. And it’s quite possible that the entire Amazon headquarters search was a huge con, including the NYC location that they needed to back out of anyway but needed a convenient excuse.
The subsidies are demonstrated not to work. It’s another grift we fall for because of our blind and irrational faith in “markets.”
Damn right – who in the hell would want to locate to Arkansas or Alabama? Bunch of damn deplorables who believe in God, two genders, border security, and innocent until proven guilty. They also probably get their news from Fox, vote Republican, have low taxes, and a low cost of living, and who in their right mind could possibly want to live in such conditions?
@E. Olson
https://static1.squarespace.com/static/5a8eed2df9a61e6973e94662/5a8ef0c153450a3f7c620f22/5ac25a9e03ce648731df710c/1525209309002/MFE.jpg?format=750w
Ever’ wun in Arkinsah look lak theyt. Yud not waht ‘t go theyr lessin’ yer kin.
Ozark Mountain Daredevils – wow I hadn’t thought or heard of them in years – thanks for the trip down memory lane.
They could easily have located in Boston or a few other top candidates in the NYC league.
Also, its not a shock to me that they choose Virginia over DC or Maryland. Once you decide to locate in the DC area, Virginia has lower taxes, is in better fiscal health, and is further to the right politically.
Northern Virginia, the suburbs of greater DC, are leftist and vote Democrat. The rest of Virginia is right wing but milks Northern Virginia for taxes.
Faith in markets is neither blind nor irrational. It’s reliance on your neighbors to make decisions based on their self interest, whatever that might be. Government’s role is to well thought out, well enforced rules to help prevent abuses. It works remarkably well and our economy quickly adjusts itself to excesses, shortages, changing attitudes etc.
Amazon is voting with their feet. If New York wants to rape them with taxes it’s perfectly within their rights to choose to set up shop somewhere else.
I don’t think Amazon is moving because of NYC wanting to rape them with taxes. I think they changed their mind due to the bad publicity/optics of politicians. Companies do not like to be in the news and used as a dart board for politicians looking to fund raise or stir up their base. Brand matters. Folks like AOC spinning the deal to present Amazon in a negative light on top of them LEGALLY minimizing their tax liability and having that thrown out publicly as another “ah HA!” They are just doing damage control. They’ll take a short term hit by moving, but they likely perceive that cost as being a lot less than for the next 2 years being a punching bag in the MSM who are every bit as positive for loony statements from AOC as they are negative for anything Trump.
This whole issue could be solved if corporate income taxes were eliminated, because corporations never pays taxes anyway. Only people pay taxes, thus corporate taxes always get paid by employees in the form of lower salaries, shareholders in the form of lower dividends and stock appreciation, and customers in the form of higher prices. Eliminate corporate taxes, and the money that would otherwise go to government will instead get used to expand the business, pay employees higher wages and benefits, increase dividend payouts to pensions funds, mutual funds, and individual investors that own stock, and offer market expanding lower prices to consumers. All these “new” uses for the otherwise taxed profits will also become part of the income taxes, capital gain taxes, dividend income taxes, and sales taxes paid for by the employees, investors, and consumers who receive these “new” corporate benefits.
Eliminate corporate taxes, and location decisions will be made on a rational basis such as size and quality of available workforce, regulatory friendliness, real estate prices, quality and stability of needed infrastructure, and geographic proximity to profitable customers. This is already demonstrated by the fact that many businesses are already leaving over-taxed, over-regulated, over-priced, poorly maintained places such as California, New York, NJ, Illinois and moving to lightly taxed, sanely regulated, reasonably priced, and well maintained places like Tennessee, Florida, Texas, Washington, Nevada, and Arizona without receiving any special deals from local governments.
@E. Olson
Maybe. I’m not so sure that every billion moved from working people to the pockets of the already ultra rich is a good thing. At the same time, as you say, corporations are so good at avoiding taxes anyway that a better strategy might be worth considering. What would concern me right off the top of my head is that what we’d find is that the 200′ yacht would now become a corporate expense (have to entertain don’t we?) and thus a write-off before dividends were declared thus entirely tax free. We might find that the CEO was a pauper on paper, even tho to look at her lifesyle you might mistake her for the Queen of Sheba.
More deceptive storytelling. Eliminating taxes on corporations is not giving money to the ultra rich. A large percentage of corporate share holders are not ultra rich, but institutional investors (aka, mutual funds, pension funds, etc). So yes, as those stock prices go up, or those dividend payouts increase the “evil ultra rich” get a chunk but that’s also what allows pensions to pay and retirees to live, and even students to pay for college through 529s.
Now, there is also this belief that a 0% corp tax is just a give to rich while ignoring that prices drop. They have to. One can suggest “no, they’ll keep profits!” but the reality is that shifting the “tax” from the customer as buried in item price, or shifting it to the customer paying it out of their paycheck/sales tax — it still gets paid. Corporations don’t pay it, they pass it along so the net price of the merchandise ends up the same. Actually, corporate revenue drops but costs reduce as well. Just an initial working out of the #s it actually looks WORSE to a company because profit as a percent drop, ARPU (average revenue per user) drops…all those things being used right now to judge corporate managerment success drop when tax collection shifts in this way. That is why there is the belief that companies would keep the money; however, as Ford pointed out…that only works short term until nobody can afford to buy your wares. It could actually create a perceived crash of the stock market when there finally is a correction.
@Bill
” A large percentage of corporate share holders are not ultra rich, but institutional investors”
Fine, but a large percentage are ultra rich. It does not follow that how we might view tax breaks for corporations is monolithic — that our concerns for pension funds and our concerns for billionaire plutocrats must be exactly the same. I’m quite prepared to entertain ideas of abolishing corporate taxes, but not so that Soros can add another few tens of billions to his portfolio.
Actually it’s usually only the founders who are ultra rich, and most founders get out of concentrated positions fairly early and hold diversified portfolios. We hear about the ones who don’t or can’t – Bezos, Musk, etc. Most of the stocks in the market belong to ordinary people investing for savings and retirement through mutual funds and pension funds. I know – managing investment portfolios is my business.
Ray – the group that would be most hurt by a 0% corporate tax rate would be accountants and tax lawyers that are employed by the thousands in large companies to legally find every deduction (and perhaps push the envelope) to minimize tax bills. There is no reason to find expensive corporate expenses such as a yacht for entertaining when it won’t reduce the corporate tax bill because with zero % taxes there is no tax bill. In fact, high corporate taxes are what encourage firms to fund extravagant lifestyles for the top management because it all helps to reduce the tax bill.
@E. Olson
“There is no reason to find expensive corporate expenses such as a yacht for entertaining”
Yabut if the CEO paid for the yacht out of his own earnings he’d have paid tax on those earnings. Better to reduce his salary and give him the yacht as a corporately owned loaner — he gets the yacht without any tax having been paid on it by anyone. Now … if all the ‘business expense’ baloney were abolished as well as all business taxes, that would solve the problem. BTW, I have myself played these games. As mentioned elsewhere, we play by the rules as they stand, even if we think the rules are not fair.
That is the point – the big salary of the CEO would be taxed, and he would pay sales tax on his personal yacht, although he might try to save taxes by buying it and docking it in a low tax state just like John Kerry does.
@ E. Olson
But there would be no tax paid if the yacht was a corporate ‘expense’, yes? Come on. When I was in business, like everyone else, if I could write something off I did so. My boat was a bit humbler than most yachts, but it was a business expense because I could get away with that. My nasty suspicions about business come from my own behavior.
A corporate owned yacht is a big red flag for the IRS and a company wanting to avoid tax trouble would not buy one. They would just pay the CEO enough to afford the yacht (raising the tax burden to both him and the company) and then lease it back from him for corporate events (a legitimate business expense in my opinion).
In Asia and Europe, where the rich are taxed exorbitantly, like the American Left would like, rich CEOs are paid small salaries but big benefits, like a free car for life. In Japan, it costs a million bucks to join a golf course, which acts as a sort of country club. The CEO’s company buys that membership for life. And, so on.
Asking states to bid for a corp HQ has only one result : corp wins, states lose.
I think that low corporate taxes make sense under some set of conditions, such as :
– no special status, special tax rates and other such sweetheart arrangements. Those only benefits big players and put medium and small companies at a disadvantage while pushing states to cut down tax rates. Same minimal rate for all the states. Can tax more, but not less.
– a simple corporation tax code. Byzantine accounting rules, deduction and loopholes benefit big players and accounting firms. Zero benefit for medium and small players.
That will put a dent on tax income for sure, and benefit the upper percentiles quite a bit… unless one :
– taxes the capital gains in the same way as income is taxed, while increasing both rates to cover for the loss income from the lower corp tax rate.
– close the many loopholes benefiting the top percentiles and creating regressive tax rates
– get serious about tax evasion and fraud
The topic of pro-business/anti-business or from the other side of the coin pro-worker/anti-worker is something that is an almost endless debate and one many a political commentator has taken a shot at before this piece. If only government could just get out of businesses way, workers would be employed and the trains would run on-time.
The problem with that though is that government tends to have political power in part through the monopoly on force, in part through democratic cultural norms but also in a large part due to their economic power. Ceding its economic power hence also relinquishes part of its political power. Whether this is a good thing or not depends on your point of view on the political power of corporations or more specifically economic power in general.
It isn’t a reasonable assumption that a government ceding its economic power to Amazon in this instance is a positive thing for NYC. It depends on what Jeff Bezos thinks about worker salaries and train schedules as he will have the power to decide. If Jeff believes that business should pay no tax in the future, should government cede greater power to him or is there a limit?
I would agree that good governance in a capitalist economy is about setting the right conditions for business, entrepreneurship, innovation, citizen welfare, environmental sustainability etc, however while individuals and groups with great economic and hence also political power can help inform the governance process, they should not be dictating terms.
DJB – you make some very thoughtful points, but the big danger from powerful government is that good governance is not profitable. Business generally does not like strong competition, because real competition will push profits down unless the firm can continually innovate to keep costs down and/or provide a competitive advantage that customers value, but innovation has a very uncertain outcome. Society benefits from the lower prices and high innovation derived from competitive markets, and competition also provides remedies to unethical companies, bad products, or bad service, because consumers can easily switch to another supplier. Thus good governance should be built on maintaining competitive markets by making sure entry barriers are low, and that anti-competitive efforts (i.e. collusion, price fixing, consolidation) on the part of industry players is swiftly punished and/or stopped by government.
Unfortunately, maintaining a more competitive market is seldom the most profitable path for government officials, as larger corporate monopolies or oligopolies are very likely to be very generous with campaign contributions, paid speech invitations, post-political job opportunities, etc. to politicians who refrain from enforcing anti-trust laws. Similarly, large firms may reward government officials for enacting heavy regulation, because only they have the size to profitably deal with high regulatory costs that act as an effective barrier from smaller and more nimble competitors getting established. As government get richer and more powerful from serving the interests of big business, lobbying government for special tax breaks, protection from new competitors (trade barriers), or extensions on patent protection becomes a much more certain path towards maintaining profits than facing the uncertainty of spending profits on research and new products that may fail in the market, or trying to fend off tough new competitors with better ideas. Thus big business and big government tend to mutually reinforcing.
The danger of big government is therefore corruption, and competition thwarting policies that are enforced by the only power legally allowed to use physical force and violence against threats to the government’s income streams. This is why the US founding father’s created the checks and balances of the courts, congress, and executive branches, and provided citizens with constitutionally protected freedom of the press, free speech, and the right to bear arms as counteracting forces to corrupt and rights infringing government. Unfortunately, the power and profitability of big government mean that its proponents on the Left continually threaten these constitutional protections by appointing judges who will ignore the constitution and therefore fail to provide a check against Leftist expansion of power in the congressional or executive branches and the permanent Leftist bureaucracies, while the Leftist press uses its freedom to only see evil in the small government Right. Which is why the Obama DOJ/FBI/CIA coup attempt against swamp draining and self-funding Trump is the biggest political scandal in US history, and almost entirely unreported in the mainstream media.
@E. Olson
I’ve always said that libertarianism is as far from the right as it is from the left. Big government is not automatically leftist. Big government can be the servant of its big friends, which is why Hillary never did release the text of her speeches to Goldman. They say that the Koch brothers purchase their congressmen from both sides of the isle without discrimination.
Ray – I respectfully disagree. The Right generally doesn’t like big government except in areas that are Constitutionally mandated such as Defense, Border Control, Courts, and Law Enforcement. All politicians tend to be corrupted by large government with gives them larger budgets and staffs to play with, and more status in elite circles, but only the Left tends to see the government as the solution for fixing all problems in society.
Goldman probably has a lot of Leftist leadership these days, as do many of the largest firms, but even those that lean Right want to protect themselves from wealth confiscation or anti-trust by being friendly with the Left. The business world has much less reason to be concerned about pissing off smallish government Republicans, which is why Democrat candidates tend to raise more direct and indirect money than Republicans (Hillary had twice the money of Trump), but most give some to both sides to always back the winning side.
@E. Olson
Yeah, ok the right will not be as enthusiastic about big government as the left. But I think I have a point: big government can work for big money quite nicely as we do in fact see. The ‘gap’ expanded nicely under Clinton and under Obama as well as under Bush. You know I don’t even see much difference at all between the Dem and Rep establishments. Tweedle Dum and Tweedle Dee. Both are cozy with Goldman and the Koch brothers. Both at least toe the line with Victimhood (tho a guy like Mitt Romney doesn’t do it very well, but he tries). It seems to me that traditional conservatives and traditional socialists (Bernie style, not Stalinists) have more in common with each other than either has with the current versions. My socialism has nothing whatsoever to do with the woke AOC types, I am their mortal enemy. Likewise I loathe Wall St. and the Goldman school of capitalism. But I like real investment capitalism and real businesses making real products for real people, and I’m fine with the government taking prudent measures for the common good as well. For me, that’s the center. I hate all the freaks no matter which ‘alt’ they may be.
@E.Olson. while I agree with your points in some respects, one things that might alter your exploration of the topic is consideration at the macro level. You mention Amazon’s impact on NYC and how it adapts to the culture and impacts the area but I find that type of economic evaluation very antiquated. It assumes the firm is mated to the geography/government and for a company like Amazon it is not. Nothing that NYC does affects Amazon’s competitive environment. Nothing. It isn’t the same as a firm operating wholly within NYC like how zoning affects restaurants. Amazon is moving their HQ, not warehouses, not their datacenters, nothing that “really” sticks to their cost structure unless their administrative overhead is massive — which means they’re already sunk, so I doubt it. I suspect the desire to move to a NYC is more to collocate with marketing and finance firms making it easier to poach executive talent or to become more aligned with advertising firms to reduce those costs. Shifting to the N.Va area does a similar thing…gets their Execs closer to government regulators/lobbyists for greater influence there — national regulations/tax structures are far more important to their competition than anything NYC would do.
Bill – I think we largely agree and you bring up a good point more clearly than I do. The finance/marketing/advertising infrastructure and talent in NYC is the only thing keeping the place afloat and attractive to potential “newcomers” such as Amazon, because the quality of government services and infrastructure is atrocious, while the taxes that pay for them are ridiculously high, and other costs for property, construction, many kinds of transport are also very high. New York’s big challenge is keeping the valuable players in NY, because if the financial/advertising/marketing sectors finally got fed up enough by the taxes, regulations, and general cost of living to leave en-mass for Florida or Texas, the city and state would sink without a trace because no big employer/taxpayer would have a reason to locate there (at least coastal CA has nice weather).
@DJB
You make some valid points. However, it is not simply a choice between government power and corporate power. Governments and corporations have a symbiotic relationship. The corporation lobbies and provides donations to politicians. Additionally the corporation promises jobs to increase the tax base. The corporation is seeking three things in return 1) a return on its investment 2) a competitive advantage and 3) cost minimization to increase its bottom line. The corporation is not evil these are things it’s fiduciary duty to the share holders require. Any shareholder in XYZ Corp. wants and expects the Board of Directors to maximize profits. If governments are going to put themselves in the business of picking winners and losers through regulation and disparate tax rates, corporations not only will but are required to seek the advantages within that government system. Using differing tax rates and regulations is government’s way of manipulating markets to its advantage.
Farris – you raise a very valid point, but what are the 3 things that government leaders want in return?
One theory that I think has a lot of merit is that government never wants to solve a problem, because then their personal paydays disappear. For example, every time someone in government starts talking about doing something serious about border control you can be sure that open border Lefties and cheap labor Righties will be flooding anti-border control Representative and Senators with campaign contributions and other bribes to quell down the threat. Repeat this every few years and it keeps the campaign war chests full and some extra cash in public servant pockets, and all they have to do is never solve the border problem. Same things with tax reform, deregulation, global warming mitigation, gay rights, etc. – regularly bring a controversial issue up, but never fix it so that future paydays disappear.
@E. Olson
Taxes seldom disappear. Americans still pay a telephone tax assessed to finance the Spanish American War. Taxes and spending create constituencies that demand perpetuation of said taxes and spending. Pandering to these constituencies is no different than buying votes.
Politicians are expert at inventing problems and issues. And yes you’re correct the continuation of problems is job security.
Remember the Maine.
Once a government establishes a revenue stream, it never dies.
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Easy solution to the problem. A 200% federal excise tax on all subsidies given to for profit entities by state and local governments. On general principle, the rate would be 10,000% for sports teams.
George – Do you really think that some (unsubsidized) dilapidated sports stadium with no luxury corporate skyboxes, gourmet concession stands, state-of-art press facilities, or spacious player lounges is an appropriate venue for players to take a knee in protest of the racist country that pays them millions and wears their jersey to the games? What kind of insensitive, greedy person are you?
We already have in place real world examples of what the author is proposing.
All across America there are small dwindling towns in places like Kansas and Wyoming, where the local city councils are very pro-business and would be happy to let Amazon relocate there for virtually no taxes or regulation whatsoever.
Why aren’t companies flocking to these towns?
The answer explains why crony capitalism is so pernicious. Businesses aren’t simply gifting jobs like fairies distributing candy. That assumes the relationship is parasitic, where the business provides benefits to the city while receiving none in return.
A business is requesting things from its city like a large base of educated workers, reliable infrastructure, efficient police and emergency services.
It also needs pleasant environment where its employees want to relocate, with parks and museums and well run schools.
These things cost money, and require regulation to enact. The transaction is bilateral, not just parasitic.
Amazon does not go to small, dwindling tows in Kansas and Wyoming because they are small and dwindling. Amazon needs workers to man its headquarters. It’s not building a ghost headquarters that lies empty.
New York has for the past two years (at least) been running TV ads all over the country touting enterprise zones for companies who are thinking of relocating there. The enterprise zones include various incentives, including tax rebates.
And now New York has offered one large tax rebate to Amazon. Nothing different from the enterprise zones they are advertising to other businesses: “come open up your business here and we will make it worth your while.”
What this overlooks is that NY has long had an unattractive business climate. Any time you can offer an incentive, it shows that you have laws and customs that are unfriendly to investment. Rather than offer a special incentive to Amazon, NY should roll back the practices and policies that hinder investment in their state. Of course that diminishes the opportunity for kickbacks and other rent-seeking.
But have they really looked at WHY they have an unattractive business climate? What the original author is pointing to is the utopian view that municipalities/regions/nations should be striving to create those climates in-general; however, some simply cannot. If they could, then central planning models like socialism/communism and the like would be far more successful than they are. It’s why Amazon was looking for places with major airports of metropolitan where their executives could mingle with others to positive impact (in NYC w/ advertisers/finance, in NVa with government lobbiests) And for an international firm like Amazon, they need the international airport to handle that international traffic! All of the discussion about local subsidize to lure is a red herring for a large international corporation. There is nothing “financial” that NYC could offer Amazon for it’s HQ that dramatically skews the choice. Finance benefits are the lure but Amazon would either pay NYC for taxes or pay travel charges to get to airports if in Podunk Iowa. Also, I doubt the left-wing Leadership of a silicon valley corp would ever consider moving their HQ to an area that isn’t leftwing. Can you imagine those execs wanting to live in a deep red area?
“I doubt the left-wing Leadership of a silicon valley corp would ever consider moving their HQ to an area that isn’t leftwing. Can you imagine those execs wanting to live in a deep red area?”
Bill – are you telling me that all those Leftist slogans about “diversity is strength” are only slogans, and that they really don’t want any exposure to diversity of viewpoint?
An interesting tangent, but i’ll bite even though I recognize your sarcasm. The literature on diversity is strength is valid and repeatable if one falls back to the true definition of diversity along cultural lines. Unfortunately, “diversity” in corp-speak is simply female, alt-sexual, black. I wasn’t Dalmore’d when I presented on this topic where I work and used the slot machine analogy where folks go to those machines with 5 wheels and 5 different lines (straights & diagonals) on which to win. Those complex machines being the ones most likely to generate wins similar to a group of truly diverse individuals (not diverse on immutable characteristics but on culture ala Hofstede) are the groups with the highest probability of disruptive innovation.
Diversity was a great idea before it morphed to social justice and intersectionality wars.
Bill – interesting comment, and an interesting follow-up question is why has the great idea of diversity morphed into social justice and intersectionality wars? I have some ideas, but I’d like your perspective.
@E.Olson,
Don’t know why, but won’t let me reply directly to your post, only again to mine (?)
I think diversity morphed due to convenience. While in the grand sense, Diversity could be exemplified by an organization of multi-cultural/multi-ethnic/multi-lingual people, it is the negative argument that took it askew. Someone used a picture of an “all-white” or “all-male” boardroom to go ah HA! No diversity! because of the lazy assumption that all white people are the same or all males are the same. Very twisted considering even in the basic case of voting it isn’t true. You see white people and men on both sides of the aisle in Washington and have for more than two centuries so how could we all be alike? This is where intersectionality has created a false split.
So that is my hypothesis. Intersectionality has morphed diversity to being simply..show differences from a the standard of white male, versus what was really meant from the sociology/psychology fields. I would bet throwing things from culture studies, like Hofstede, would not count. I actually showed that point to some peers at work (another tangent, i’ll be brief):
My company hires a lot of H1-Bs from India. I was talking with another US Native who was expressing some frustration about how some were easy to work with and others were not. I asked for examples from each bucket and set up a meeting with a sample, plus 5-10 others. I opened by putting a big world map on the wall and asking them to put a pin in their home town. I was actually explaining diversity through diversity. The “difficult” were all northern India, the “easy” were all southern. We ended up having a great hour long discussion about the various cultures in the areas we clustered from. But hey, at the start…and Indian (subcontinent) is an Indian, right? Sure..and an American is an American, no matter if they grew up in NYC or Iowa, right? Intersectionality has devolved to “looks like” versus “culture of.”
Bill – thanks for the thoughtful response to my question. I’m sure you are correct to a large degree that counting colors is easier for the HR department than counting Left vs Right or other invisible to the naked eye types of diversity. But you also bring up one other factor that I’m not sure you recognize, which is the “difficult to get along with” versus “easy to get along with”. Since humans are very tribal, we tend to locate with people who we perceive to be similar to us because doing so usually makes it easier to form trust, easier to come to common agreement, and provides strength through numbers. Thus the easy versus hard to get along with judgment is likely very subjective with the correct answer depending on which group is closer in values, background, and personality to your own. Thus a Left-wing group is much more likely to “get along” with other Leftists than they are with Righties and vice-versa. This functionally seen on college campuses where research finds faculty in most social sciences and humanities are 90+% Leftist even though there is visible to the eye diversity in skin color and gender (i.e. the males, females, blacks, Asians, whites, Hispanics are all Lefties). I suspect it may be similar on the Right in some corporate boardrooms where all the colors and sizes are Right leaning, although it seems the Right is more tolerant of actual thought diversity so I expect there may be more real diversity in dominant Right leaning groups.
This brings up another issue. The quality of the “diversity is strength” research that supposedly demonstrates the positive benefits of diverse groups. 99% of the research that gets published and publicized is going to be done by Leftists who believe diversity is a positive thing (even if they don’t live it themselves), which means the research they produce is very likely biased to find pro-diversity findings, while research that finds the opposite is buried. Robert Putnam famously waited years before from publishing the results of a large scale study showing that diversity had mostly negative effects on measures of civic health, because he didn’t want to believe the results as they were so contrary to his value system.
http://archive.boston.com/news/globe/ideas/articles/2007/08/05/the_downside_of_diversity/
“Strength through diversity” is bunk. Look at the steam engine which brought on the Industrial Revolution, the single most important invention ever. It was invented by a white guy and tweaked by two hundred other white guys to become commercially viable. Look at the light bulb, invented by white Thomas Edison and developed by his whitey-white lab, which also developed the movies and the phonograph. Look at railroads, invented by white guys. These white guys invented the modern world in which the rest of the world was diverse, but invented nothing of note.. Diversity neither added nor detracted from their efforts. The only things that mattered were talent and culture. Everything else is rubbish.
This whole debacle speaks more to the ever insatiable need for money for big government. This is also seen in smaller cities and towns. My home town of 40,000 in Massachusetts does the same thing for developers. They give tax incentives where property taxes are deferred for years and in at least one instance decades. Now the my home town has developed more spaces, that it has turned into a concrete jungle with traffic issues.
The underlying issue is that government, local and state, have become so dependent on more and more money they are willing to give everything away. They have been caught up in a business model vortex only mega corporation employ and as usual the people get the shaft. I would be surprised if another large company, seeing what Amazon was given, will not up their demands and greedy government will just run to see what they can sell to get it. Even if its the future of the town and its people.
The quality of this article falls below the standard set by the journalism of this site. The author presents standard neoclassical economic arguments without citing research and hints vaguely at the benefits. To say that New York City, the economic center of America (arguably the world), is in anyway anti-business is laughable.
Maxwell, I agree. And this struck me:
“middle-class locals who came out in droves against the deal”
Really? The middle class? I know the area (LIC) very well. There’s no way the middle class there would see Amazon as anything but a rainmaker.
Though mostly not a cash-in-hand subsidy, which IMO shouldn’t be given, incentives such as tax breaks still stack the deck in favour of one (often a large and powerful company) at the expense of many smaller ones, especially those who are already in the state and that have been providing employment and paying taxes without the leg up. The result is a two-tier system. A company with the might of Amazon certainly can better negotiate more favourable terms for itself. This issue is that the law should be applied uniformly. When it is not, this further erodes the faith in the institutions – it’s already quite low, so why further damage it in the eyes of the public? In turn, this plays into the hands on people like AOC.
It’s one thing when a company wins success and riches in the marketplace by offering goods and services consumers want, and this I support, but it’s altogether a different thing when a company seeks to build success and wealth by seeking tax breaks.
A similar thing occurred when online businesses and Silicon Valley lobbied for and won exemptions from sales tax years ago, stacking the deck against bricks-and-mortar shops.
The EU has also been grappling with this issue. To entice foreign-direct investment (FDI) Ireland has long cut similar deals, and the EU for decades accepted this. I suppose the rationale was the poorer countries needed a type of affirmative action or else the FDI would a flow to UK, France, and Germany – why else would anyone set up shop in what was then a backwater? Poorer countries, states, and regions don’t have tax base to build the infrastructure and amenities to compete with London and Paris goes the argument. Last year the EU ruled that these tax breaks violated EU rules and instructed Dublin to not only revise them, but to also collect tax for previous years. This was a dramatic shift in European policy which from the start recognised each member’s sovereignty over direct taxes. Further, this rubbished the principle of not applying law retroactively. IIRC, the EU threatened to penalise Dublin if it refused to collect the tax – Ireland has appealed this ruling. Now the EU wants to harmonise corporate and income tax rates cross border; it has done so already with VAT, setting a minimum standard VAT rate at 15%.
In the end, states will find clever ways to attract investment and even collect fees. For example, may owners of super and hypercars in the US register them in Montana using LLCs created for this purpose, thereby avoiding the payment of sales tax to their states of residence. In response, other states like Georgia are cracking down on this.
Lastly, I think Fred’s comment is well put.
@ga gamba
I was hoping for a reply to my last post on the other thread. We may not be as far apart as either of us have supposed. I agree with everything you say above, you show sympathy for the little guy, even if he owns a mere brick and mortar shop.
It isn’t that I have sympathy for the little guy, it’s more that I think laws ought to be applied uniformly. My sympathy is for those who have to play against those who arranged it with the dealer to stack the deck – often it is the little guy, but not always. If it were a little guy receiving special treatment I’d oppose it too. An example of this is small businesses, say those with fewer than 20 employees, that appeal for and receive exemptions from new minimum wage increases. As it is, we have a wide array of individuals and groups all competing for special privileges granted by the government. Who benefits from this me-me-me-and-the-gimme-gimmes system? Not only the recipients but also the politicians and bureaucrats, present and former, who trade their advocacy for financial and non-financial backing.
@ga gamba
“My sympathy is for those who have to play against those who arranged it with the dealer to stack the deck – often it is the little guy, but not always.”
Ok, I’ll correct my own statement to conform to that.
“Not only the recipients but also the politicians and bureaucrats, present and former, who trade their advocacy for financial and non-financial backing.”
Sure. The shadow of corruption is always there. We should never forget that more regulations always make more niches for wickedness to flourish. What I’ve always admired about the American FF is that, while designing a government, they fully understood what can and usually does go wrong with government. My ideal bureaucrat is a guy who fully knows what can and will go wrong with his intervention. He’s like a drinker who is fully aware of what happens if he has one too many one too often.
@Ga
“It’s one thing when a company wins success and riches in the marketplace by offering goods and services consumers want, and this I support, but it’s altogether a different thing when a company seeks to build success and wealth by seeking tax breaks.”
Companies/Corporations are merely playing the game governments have put forth. As a shareholder would you care to invest in a company that failed to seek tax breaks, failed to seek regulatory favor or otherwise failed to maximize profits?
In my opinion the relevant questions are why does the game exist and why does a country with an Equal Protection Clause to its Constitution allow governments to tax and regulate individuals and entities differently? If representative governments allow persons and entities to curry favor, they will.
@Farris
Sure. We play the game by the rules extant even if we know the rules should change. Buffett thinks he should pay more taxes than his secretary but he doesn’t volunteer them, he wants the rules changed for everyone including himself.
“Buffett thinks he should pay more taxes than his secretary but he doesn’t volunteer them, he wants the rules changed for everyone including himself.”
Buffett says a lot of things, but you have to look at what he does to see how he really feels about paying taxes. Last I checked he still hadn’t paid taxes going back as far as 2002 because he is super aggressive in pushing the envelope on minimizing his corporate and personal taxes. He has also put almost all his wealth into trusts that will minimize estate taxes when he dies. His children are adults and very well off, his wife is very comfortable, and he can’t spend money when dead, so why should he put so much effort into avoiding taxes on his estate? He may feel a fiduciary duty to minimize taxes to maximize returns for Berkshire Hathaway shareholders, but why doesn’t he gratefully pay taxes on his own money? Could it be that he thinks government largely wastes the money it gets, but he can’t say that because he doesn’t want the IRS and Leftist bureaucracies and media scrutinizing his affairs too closely, or slowing down the subsidies and tax breaks he gets?
@E. Olson
Sure, but that’s my point — he plays the game by current rules even if he knows they aren’t fair. I do the same. He has the luxury of distributing his wealth as he sees fit thru his charitable endeavors (and probably will do a better job than the government anyway). He does not overpay his taxes tho, because … well heck, would the IRS even take an overpayment? Yet he may be aware that the system is not fair and desire it to change. But as a businessman he competes and thus he wants the rules to change for everyone at the same time. There is no contradiction.
Yes the IRS will happily take an extra payment over and above the regular taxes paid, so Warren could easily kick in extra bucks to make sure he pays more taxes than his secretary without forcing the entire tax code to change.
Almost as bad it when sports teams blackmail their home cities with the threat to go to a city offering a better deal. The better deal usually involves sky boxes in which the rich can entertain their clients. All this so a sports fan can cheer his or her band of mercenary athletes.
Illinois and Chicago are doing the same thing. They’ve raised taxes to insane amounts while refusing to deal with the ticking time bomb known as unfunded liablities…and then turn around and use executive privilege to offer select companies (bold enough to threaten to leave) incentives to stay.
Worse…these politicians don’t pay a price for these moves and they should.
It’s why people who live in large cities should stop looking at the color of skin, gender and other aspects of a person’s identity when going to the ballot box, and start looking for real diversity. Otherwise, their fate will end up the same as Venezuela where the powerful and connected (the chosen ones) are well provided for while everyone else has to dig through the dump to find scraps.
@Erica
The Illinois Supreme court has handcuffed the ability of politicians in Illinois to address what you correctly label “the ticking time bomb known as unfunded liabilities”. As a result, they literally need to amend the State Constitution to address the problem.
Tax on sales, so whoever can spend the most, pays the most in taxes. If you can spend, you have money to share with the country/state/county/city. This also means corporations will pay plenty in taxes.
Make corporate profits taxed at zero. Only when they spend the money or give it to investors should a tax be applied.
Tax capital gains like normal income. There should be no government preference for unearned income over earned income.
Set your tax policies and let companies and people move in or out based on the law, not on what special deal you cooked up with corrupted politicians and their donor class.
I don’t see anything in need of solving besides federal intervention. This is exactly what the state system was set up for: each state institutes it’s citizens’ preferred policies and we see what works. Leftist anti-capitalist leaches will sink their states (as they do nations) and right-wing states will thrive and innovate. The only problem is federal regulation, as the leftists have grown like a cancer in both parties and even republican states hand over power too willingly to the federal. What we need is a constitutional convention to gut executive and judicial power, return the senate to a state-representation system, and dissolve the fed.
Author please write this sentence on the chalkboard 50 times:
TAX BREAKS ARE NOT SUBSIDIES.
Allowing a company to keep it’s own money is not ‘giving money away.’ The author makes it sound as if Amazon is planning to use somebody else’s money to fund its own selfish projects, but in reality, the company will simply be paying slightly less in taxes than it might have otherwise. Unless government was the source of the wealth or had a prior claim to it (and of course it didn’t), there’s no reason to think of tax exemptions as private takings from public coffers.
Tax breaks are absolutely subsidies if you are taxing some businesses but giving favorable tax treatment to other companies
@Ray Andrews. I suspect you are talking about an ordinary pleasure boat, which could be no more expensive than a very good car, and a closely held business. You were operating under the radar, and good for you (nobody should pay a tax they don’t have to). For a corporate owned yacht, add a couple of zeros and a salaried crew, and continual IRS scrutiny over the corporation in the first place with or without a yacht.
@Larry Siegel
Yeah, maybe the yacht wasn’t a very good example. But we do read of some very wide loopholes one way or another. Bottom line is that the rich are getting very much richer and I would say out of proportion to any additional support they may be giving to the economy. They, naturally, say that they need to be even richer and that the best thing for the poor is for them to dig deeper and give the rich even more tax breaks. I wonder if they are being quite honest.
Ray – you might find the following short video interesting.
https://www.youtube.com/embed/BomQxCG5VG4?rel=0&autoplay=
E. Olson
Sure. Progressive taxes is one of those things that has no answer, But as we discussed previously, Buffett pays less tax than his secretary, video notwithstanding. Me, I’d be happy with a flatter nominal tax rate if it was in fact paid and not loopholed or hidden offshore. Amazon should not be paying 3%. How about 20%? Or nothing, but no writeoffs either.
Ray – a flat tax would be great, except the politicians would again not be able to make any money off it unless they could exchange bribes for special exemptions from the flat rate. The accountants and tax lawyers would also not be very happy about a flat tax, and the realtors and non-profits would worry about losing the tax deductible mortgage interest and charitable donations, so lots of parties would fight it tooth and nail.
The problem is that the politicians the bureaucrats and business all have different measures of success. For the politician success is measured in the general economic indicators and the amount of government largesse that can be given away to people. For th bureaucrats the measure is the budget allocated to their department and the number of employees that work for them. Capitalists of course measure success by the amount of profit generated.
Governments help the bureaucracy to grow because that allows them to put more spending programs into place and look good with the mass of voters who are totally selfish and believe that government is all about giving them things for “free”.governments have thus allowed the bureaucrats to tie the whole system up in rules and regulations that make the Business climate difficult. Larger businesses therefore seek breaks from governments. Governments are attentive because they love dealing with large players. It is simpler to deal with Amazon and its 25,000 jobs rather than a few thousand small businesses.
But small businesses hire more people overall than large companies.
If the government wants to revive business then it has to sack a lot of bureaucrats and reduce tax and regulation for small businesses.
@peter,
Exactly! It’s interesting to watch these folks in action all with their own agenda and making them align. It’s so convoluted the avg taxpayer just says, I am glad more jobs are coming.
Back in the 80’s the big selling point to those corps relocating from the North to the South were lower taxes, a ready workforce and quality of life. We couldn’t build McMansions fast enough.
All that has changed and a big reason is because of H1B and illegals.
The author writes as if no one has been saying that it is the unhealthy tax and regulatory regime that is the root cause. Everyone on the right has been saying this, for years. The author’s blatantly false statement reveals he doesn’t actually listen to any conservatives. Certainly not Ben Shapiro, the most popular conservative commentator for young conservatives, or Maxime Bernier, the founder of a new (actually conservative) political party in Canada.
Even Governor Cuomo admits as much when he says that without tax breaks and deal-sweeteners, Amazon would go to Texas.
https://www.nytimes.com/2018/11/13/business/economy/amazon-hq2-va-long-island-city-incentives.html
As usual – a very good comment Stephanie. The problem for Cuomo is he can’t or won’t put 2+2 together. Why does NY have such high taxes and regulations that are business unfriendly? The truth is that generations of Democrat administrations have allowed government payrolls to become hugely bloated, and promoted union friendly policies to greatly bloat the pay and benefit packages of those bloated government staffs, with no legal remedies to fire or scale back staffing or pay packages due to financial crisis or incompetency/lack of need. Throw in a generous welfare state staffed by highly paid unionized employees, which attracts the tired, the poor, the huddled masses yearning to live free, the wretched refuse of our teeming shore. Send these, the homeless, tempest-tossed to me, I lift my lamp beside the golden door!, and you get a lot of overhead that is difficult or impossible to cut, and totally dependent on a few very profitable industries and rich individuals sticking around to pay the vast majority of taxes that the NY house of cards is built on.
I have some past experience dealing with the government economic development folksin my state. A couple of things:
Big picture- it’s more than annoying that citizens look to government to supply jobs. And that’s what this boils down to. We were always competing with quite a few states so the governor could announce he brought in 1200 jobs.
I am more concerned with breaking down that sort of thinking.
Details: Any incentives that are not available to small businesses and entrepreneurs is unfair and creates the two tiered system we should despise. Most people don’t know that the lady filling pudding cups at the local hospital works for a French conglomerate that received incentives. .
It’s not just bringing in new jobs from huge corporations but keeping the ones we have! (Fill in the blank) knows (fill in the blatant) is offered xyz incentives so they plant news stories they are thinking of relocating. A bit of saber rattling. The EconTeam goes into panic mode and starts the talks for more incentives to stay. And on it goes. It’s a big business for lawyers, bureaucrats, negotiators, universities etc.
It’s almost like a hostage situation. But it’s about the votes.
The OP’s theory is good, classical economics. As such, it has a grain of truth. But there is one factor classical theory does not address…many of the politicians offering these tax breaks are lousy at negotiating deals, and give away much more than they need to.
All they see is the chance for a great photo-op, cutting the ribbon on the new facility. For example, the deals in my state included new infrastructure, tax breaks on construction, training programs, and other incentives involving up-front spending by the states. But there were no claw-backs. When the promised jobs did not appear, or the plans go scaled back, the state money was already spent, but the jobs did not show up.
NYC did not do that, but they could have cut a better deal. New York is very attractive for companies like Amazon, mostly because the highly-educated staff a HQ needs to attract wants to live in place like that. The politicians were mezmerized by the bragging rights, and gave away more than they needed to. Classical economic theory does not account for that.
Why is this in Quillette?
The biggest win for opponents of the deal would have been for Amazon to offer further concessions, but not actually pull out. The idea that this was a victory for locals or organized labor doesn’t hold water – it would have made much more sense to wait for Amazon to invest and get fully entrenched, and then hit them with demands. Also for politicians who think they derive power from being ‘speedbumps’ – that only makes sense if, after making your demands, you get something in return. That strategy doesn’t work if the net effect is to drive away future deals.
I think what happened here is that Amazon called their bluff. Amazon was thinking ahead to the next deal and was saying to potential partners: “get all of your local politicians in line or we will walk away”.
“New York should be a business-friendly city” – Compared to what other city? Being business friendly is not an absolute, a city can only be more or less business friendly compared to other cities. Therefor the incentive for cities to compete against one another continues and the root of the problem is not addressed. This dynamic also plays out on a global scale between countries.