Iowa's handout to Apple illustrates the folly of corporate welfare deals
latimes.com
latimes.com
If you do care about it, maybe you should be complaining much more about all of the corporations that are "Delaware" corporations to avoid state taxes instead of being corporations where they're actually located.
We had a family that owned a LOT of land in our city put a few cows on it to save money on property taxes.
Also, depending on the state, the entire property doesn't need to be planted, just a portion that probably varies state to state.
Here's a Forbes article on it.
https://www.forbes.com/sites/ashleaebeling/2012/06/06/farm-l...
If you watch videos of early SpaceX engine tests, you'll catch confused cows running around in the background. Texas is good to its farmers. So SpaceX tested its engines on a "farm".
The article points out that the pledge contains the significant words "up to", and is actually only pledging $20M. So, for $20M, they get $20M off their taxes, plus a 20-year tax abatement worth $190M.
Where can I, as an individual, sign up for such an awesome deal? I'll happily pay one year's income taxes to avoid the next 20.
Nowhere, because your tax dollars are a drop in the bucket. Don't pretend like you don't understand the difference between your few grand each year and Apple's tens of millions.
The rest of the tax abatements are _local_ government property taxes. Given the large pledge of funding otherwise, who cares. This is not money that would go to subsidizing energy programs. It would go to doing whatever the local government does, like city maintenance and parts of the police, fire, schools, etc.
>... it’s important to understand how the “Delaware loophole” works: A company sets up a subsidiary in Delaware, and transfers an intangible part of its business there—say, its trademark or naming rights. Then its other locations outside of Delaware pay money to the subsidiary in order to use that trademark. Since intangible assets are not taxed in Delaware, the company doesn’t have to pay taxes on the money that was transferred to the subsidiary. The company can deduct the cost of the royalties on its state returns in other states where it operates, and thus avoid a large share of the state income taxes it would have otherwise owed. It is the laws of states other than Delaware that allow this system to work.
YC rightly recommends incorporating in Delaware because the state has a predictable structure of corporate law and courts that are expert in applying it.
Implying that incorporation in Delaware is inherently some kind of tax dodge is bordering on slanderous.
Your logic is either naive or you don't care about your fellow man. If it is the latter, I wish you your just deserts
Yes, it happens in other cases too, and citizens should also protest against those other cases.
It says that tax incentives don't actually factor into company's decisions that much, nor do they correlate well with economic performance.
Playing for a single win at the expense of others in one round of the game is near sighted.
That would only matter had they chosen not to incorporate, once they do (or buy into it), then they should accept the rules, warts and all. As you said, a corporation is a purely legal notion with upsides (limited liability) and downsides (pay the bloody taxes, c'mon)
The shareholders of publicly traded companies expect exponential growth, and if the managers and owners don't provide that growth, the board of directors kicks them out and replaces them with someone who will drive that growth, regardless of the effect on the workers. When corporations naturally behave sociopathically, it's only natural to treat them differently from normal people.
Edit: To those downvoting me, could you please explain why? If I'm interpreting something incorrectly, I would like to know.
If one state has poor schools then companies won't want to be there because they won't be able to find competent employees. If one state has no government healthcare subsidies then employees there will demand higher wages so they can pay for healthcare.
The states that have better schools and more subsidies will have correspondingly higher taxes. The only way that creates a disadvantage is if the tax money is being spent inefficiently, so that the benefits don't outweigh the costs. Or, on the other side, the state is giving more to a company in benefits than the company pays in taxes and the company becomes a parasite.
But that is not a race to the bottom because ineffective programs and corporate parasites are bad. Pressure to eliminate them is good and the state that best eliminates them wins, as it should be.
You presume that all companies choose the locations that will benefit them in the long-term.
So long as Apple has some trendy locations people will be happy to work there and the schools won't even be a consideration for most.
Do we really want to structure our society like this? Do we want to require so much instability for the workers that they can't even start families?
I don't. I'm getting really tired of large multinational corporations blatantly controlling our government, our quality of life, and now trying to control our very culture.
You say that like it's a bad thing. Humanity is a plague, we breed uncontrolled and our population keeps growing and growing. There is no need for anyone to start a family, there is no shortage of humans.
It's like they want to keep the Ponzi going by adding more and more people.
It's quite clear, especially in places like China, India, and Indonesia that runaway population growth is incredibly destructive to the environment.
If government and taxation and retirement systems require more and more population in order to operate successfully it's all coming down at some point.
Yup. And the longer you wait to fix it, the more painful it's going to be.
It also seems like most people are driven purely by instinct, the moment you even suggest they shouldn't breed like rabbits it's regarded as the most offensive thing you could possibly say. It's weird, I don't see how they suggest we keep going. When should we stop ? 10 billion, 15 billion ? Or just wait until society collapses and we go extinct ?
Moreover, it is generally considered a sound principle that successful professionals should be encouraged to have children. Whatever combination of genes, knowledge and resources allowed them to become successful themselves is more likely to lead to a successful next generation. And high income earners are more likely to accept paying taxes to fund good schools and other programs for children if they have their own children to make use of them.
I actually agree that population growth will likely need to be regulated one day, but the wording is unnecessarily inflammatory and it's too far off topic for this thread.
This is nonsense. By this logic, corporate pressure to eliminate environmental regulations is "good" because they are "ineffective programs".
You assume, wrongly, that the benefits of public investment realize themselves within a timeframe that matters to the bottom lines of individual corporations. In reality, markets reward short-term orientation and externalizing costs. Traditionally it has been up to the public sector to take the long-term view.
This is true especially in our industry. The majority of very-long-term-oriented investment in high technology that has no immediate ROI prospects comes not from VCs, but rather the U.S. government through agencies like DARPA. Corporate tax avoidance has nothing to do with seeing DARPA as an "ineffective program".
Environmental regulations prevent a harm. A dollar value can be attached to the harm, the cost to compensate victims and clean up the damage. If a company is polluting but not providing enough value to compensate for that pollution then they're a parasite and the state does not benefit from avoiding environmental regulations in order to attract them.
In practice not polluting is almost always more cost effective than polluting and then cleaning it up afterwards, so states that have environmental regulations will out compete states that allow pollution and then have taxes high enough to recover the cost of pollution from local companies.
If that wasn't the case then it wouldn't actually be a problem. Suppose someone invented a way of converting CO2 + H2O + sunlight into hydrocarbons that was so efficient it put all the oil companies out of business. Now everyone is still emitting carbon, and increasing carbon would still cause climate change, but recovering the carbon using that process would be more cost effective than alternatives that don't emit carbon to begin with. Which would make doing that a completely reasonable thing to do.
The problem case is when the state is externalizing its costs, e.g. West Virginia burns coal and the pollution spreads to many other states. Those are the cases where national regulations (or international treaties) are necessary. Not because the state is allowing a company to externalize costs, since it has no incentive to do that if the state is the one paying the full cost of that. But instead because the state itself is externalizing costs and that requires some external force to prevent it, equivalent to the need for the state to prevent the company.
So failed states become a drain on everyone & at the same time the most economically challenged within the state pay the brunt of that failure as they cant move.
No they aren't. A failing state doesn't look like Mad Max, it looks like Michigan or West Virginia or Mississippi. The federal government has no constitutional obligation to bail them out.
> So failed states become a drain on everyone & at the same time the most economically challenged within the state pay the brunt of that failure as they cant move.
The risk of failure is the price of success. Either states make their own decisions and take their own lumps, or we have some Borg Collective mandatory national conformity to complex corruption-informed uniform regulations with 2000% bureaucratic overhead.
Example: https://slatestarcodex.com/2017/08/29/my-irb-nightmare/
Michigan actually does not look bad on a wide range of metrics. It's unemployment rate is right at the national average and it get about as much money from the federal government as it gives back. People pay attention to it because it's close to average not because it's failing.
EX: "Michigan's poverty rate dropped 0.4 percentage points to 15.8 percent last year but the nation saw a bigger drop of 0.8 percentage points to 14.7 percent."
And wealth transfers from richer states to poorer ones are the inevitable (indeed intended) consequence of federal income redistribution. They're a problem if they're disproportionate, i.e. two states are equally poor but one gets more money because it somehow has undue political power. Obvious example is Florida. Other than that it's no different than redistribution from richer people in California to poorer people in California, except that they happen to be in different states.
Another problem is the state-level consequences of some of the income cliffs the feds have in place, i.e. six independent subsidies phase out at the same time with higher income.
The states need the incentive to improve. Increasing average income by $4 shouldn't cause the feds to take away $5 from the state.
But if that happens, the cause is flawed federal policy, not state-level diversity.
This is a wealth transfer to failing states to prevent complete collapse or an a massive exodus of the population.
Because a bail out is normally a cliff and cliffs are moral hazards.
Suppose Level 10 is great, Level 5 is mediocre and Level 1 is a disaster. Now suppose that there is a federal policy that says if anybody gets down to Level 1, we shower them with money until they get up to Level 5. What incentive does this create for a state currently at Level 3?
Compare this to something like a $12,000/year federal UBI with a 30% flat tax rate. In that case an unemployed person gets $12,000 and someone with a $20,000/year job gets $26,000 ($12,000 + 0.7*$20,000), which is obviously better than just $12,000. Moreover, the UBI is unconditional regardless of which state you live in, so if your state is terrible, the level of assistance isn't conditional on you continuing to live somewhere unsustainable.
> This is a wealth transfer to failing states to prevent complete collapse or an a massive exodus of the population.
But that's what's supposed to happen. WV has negative population growth. There is nothing wrong with that. It doesn't need to be stopped. It's completely natural for unsustainable places to be abandoned.
Places aren't people. There is no need to save them through external intervention.
PS: IMO, death spirals from economic shifts such as lower demand for coal miners are longer term problems, but just as much a crisis.
The externalities that cannot be internalized at the state level are the exception. That is why, as I explained, environmental regulations have to be national -- pollution crosses state lines. And if you go above the national level, climate change is one of the only examples.
Most of the things a state does has minimal effect on other states. If people are homeless in Miami, that may be bad, but it has minimal effect on people in San Francisco.
This is true for positive externalities as well, such as education and public health. Firms can simply move to the states that invest the least in public services and have healthy, educated adult workers provided by other states move there. Tax competition undermines the mechanism of internalizing the taxpayer-funded cost of their education and health.
But how does it motivate states to have weaker environmental regulations?
Suppose it saves a company $10M to not have to comply with environmental regulations, but as a result $25M in damage is done to the state.
A state has no rational incentive to do that. They are paying $25M in costs to give the company a $10M incentive. They could give them $10M in tax credits instead and be ahead by $15M.
Irrational or corrupt states may do it anyway, but in that case the problem isn't competitive pressure, it's stupidity or corruption. And then the next state over can out-compete them by offering environmental regulations with a $12M tax credit which the dumb state can't afford because it lost those resources to pollution.
> This is true for positive externalities as well, such as education and public health. Firms can simply move to the states that invest the least in public services and have healthy, educated adult workers provided by other states move there. Tax competition undermines the mechanism of internalizing the taxpayer-funded cost of their education and health.
No it doesn't. A state doesn't provide good schools because it's trying to please school children, it does it to satisfy the parents. You can't stock up on healthcare and once you've accumulated 20 years of it, go move somewhere without it and not need it anymore.
Workers are not going to leave a place with good schools and government subsidized healthcare for a place without them unless the company pays them enough to afford private schools for their children and private healthcare. Which, if the government was providing efficient schools and heathcare, will cost as much as the difference in taxes.
Even things with positive externalities are not inherently problematic. If Massachusetts spends $10M on scientific research and the result is $25M in benefits for Massachusetts and $500M in benefits for the rest of the world, they have no incentive to stop doing it because they're still coming out ahead by $15M.
There may be other programs that yield the same benefits and cost $50M instead of $10M, but a state that yields the $25M partial benefit will never have the incentive to fund those. For that you need federal grants in the same way you need federal environmental regulations for interstate pollution.
Well it's both, isn't it? Corporations seek out the most "stupid and corrupt" state with weak environmental regulations that will drive them to ruin, but maximize short-term private profit. Also, not that hard to do when the corporate elite fund elections.
> And then the next state over can out-compete them by offering environmental regulations with a $12M tax credit which the dumb state can't afford because it lost those resources to pollution.
Great. So your corrective mechanism for corruption is, states first have to fail due to extreme environmental pollution. Which happens over multiple generations, long after the corporations that drove the process have distributed profits and moved on. Not a really primo solution there. That is exactly why we have global warming. I guess our next planet can learn from Earth's "stupid and corrupt" mistakes, as part of a natural market correction, right?
The reality contradicts you. The Netherlands and Ireland have some of the best schools in Europe and at the same time they're some of the best tax-heavens for big corporations. Too early in the morning for me to search out for any reasons for why this is the case, I've just presented what the facts currently are.
I agree with that, but a company that does business in Romania (my country) but instead pays all of its related taxes in Ireland (as Google does) is causing my country not to provide school buses and the like (that and endemic corruption, but that's another issue). I was regarding the EU as a bigger political-economic union, more like the United States, I'm pretty sure that inside both of Ireland and Netherlands both of their governments are interested in re-distributing the taxes they collect from business-activities carried out all over Europe.
I have nothing to say specific to this case, but there is a market for governments (very distorted since options are very practically limited for most people, although corporations have an advantage here), and we should encourage competition in this market, as well as political markets. Competition results in better products. Washington already won me over [partially] due to not having a state income tax and yet having infrastructure comparable to my previous high-tax state, although Seattle is working hard to change that. I think the US being a federation of states that compete at some level (since it's relatively easy to move between states) is a large reason that the country has been so successful.
Even the american post-problem lawsuit culture will fail to hold internationals accountable, once the managed to get that part of law as negotiatable into arbitration courts.
How somebody can willingly sew on the branch he sits upon- and declare that reasonable- can you expalin this to me?
> recursions
Probably meant "repercussions"
> beeing
being
> obsticle
obstacle
> once the managed to get that part of law as negotiatable into arbitration courts.
Not sure of intended meaning, but "the" is probably "they"
> negotiatable negotiable
> sew saw
> expalin explain
But they'll move across borders because of the effects of politics. My parents are looking to move from NJ after they retire due to the high tax obligation- not just income, but gasoline, tolls and property taxes as well. It's more tolerable when you're working but a little less so when your income stream isn't as high.
Perhaps in the EU or some other part of the world, but in the United States, the population is fairly mobile.
People move from state to state all the time because of job opportunities, taxes, family, healthcare, etc...
I saw a statistic while ago that said that something like 30% of Americans moved in the last five years.
It's one of the few ways a government can be kept in check for excessive spending.
Just curious- how does Washington get funding without income tax?
Every time you see a trailer registered in Maine there's a very good chance that it was registered there to skirt high registration prices and onerous requirements in it's own state. Maine's making money because other states are such a pain to deal with that people would rather skirt the law.
Google "NH state liquor store" for another good example.
Our state struggles to pay for road upkeep. Obviously we are not making that much money on trailer registrations. Also, IIRC, we were the first state with trailer weight limits and similar laws, meaning we couldn't possibly be THAT concerned with stealing business from other states on trailer registration.
Maybe Maine's lax trailer laws come from everyone and their mother owning a trailer for camping, ATV's and the like? No average Mainer wants to pay huge fees just so they can hit the trails on the weekend.
Well at ~$10/trailer/yr you're not making much money but it's not nothing. The point is that other states make trailer registration such a hassle that people would rather skirt the law in their own state and pay $20/yr to have some shell corp in Maine register their trailers than do it locally. As an aside this is particularly ass backwards when you consider that those states tend to be the states that would benefit most from people buying lighter vehicles for daily use and covering the edge case with a trailer instead of buying a heavier vehicle (pickup, van, etc) for daily use.
IMO the roads are in perfectly good shape for the number of mile/person or miles/tax dollar.
>Maybe Maine's lax trailer laws come from everyone and their mother owning a trailer for camping, ATV's and the like? No average Mainer wants to pay huge fees just so they can hit the trails on the weekend.
Is this the chicken or the egg?
This is the myth of the Free Market Fairy - https://bitworking.org/news/2008/01/The-Free-Market-Fairy
And the ways that "everything is a market" distorts and destroys are covered in this long read: https://www.theguardian.com/news/2017/aug/18/neoliberalism-t...
A mathematical market doesn't need to have your political sentiment attached to it. The reality is that there are markets for pretty much everything and we can better analyze many systems by evaluating them as such (including governments), especially as it pertains to supply, demand, and incentives. Don't shut your mind out to different ideas (or try to validate your own incorrect oversimplified world view) just because you heard a teenage libertarian make an incorrect oversimplification of free markets.
But since you brought it up, it seems like you don't understand that a strong legal framework is necessary for a free market -- only the misinformed argue otherwise. In your article's example of global warming, for instance, externalities need to be captured and property rights need to be applied broadly and equally, which they are not in our current system. Most Republicans don't realize this. And most Democrats ignore all the realities and benefits of a free market economic system because the Republicans (and some libertarians) misrepresent it.
Same thing happened with me. I moved my company from Illinois to Washington because of Illinois' draconian taxes and Washington's comparatively business-friendly atmosphere.
Of course, then things started changing in Washington and I've since moved my company to Nevada. But then, that just proves the point about American mobility and state government competition.
Local businesses like Boeing have been begging Olympia to invest, better maintain infrastructure (for as long as I remember). But those efforts are always rebuffed by the anti-tax jihadists.
Per Logic of Collective Action, the reason tax regimes should be normalized (local, state, national, international) is to minimize cheating (defecting).
https://en.wikipedia.org/wiki/The_Logic_of_Collective_Action
Supply and demand does not care whether your state votes red or blue. You've put forth two common misconceptions here -- one stems from a lack of economics training (that increasing prices always increases revenue), the other is naive (that the more money the government receives, the better the results).
If WA raised taxes (analog -- prices), demand decreases and fewer people like me move there for the tax benefits. More immediately, fewer large businesses headquarter there. Residents spend most of their money in WA so this reduces sales tax receipts, and transitively, the entire WA money supply. In the immediate term, it's obviously going to raise their tax receipts significantly. But in the long term, the effects could be quite negative, eventually even reducing inflation-adjusted tax receipts, if they really mess things up.
> Per Logic of Collective Action, the reason tax regimes should be normalized (local, state, national, international) is to minimize cheating (defecting).
Exactly what I disagreed with in my original post, but I guess we can agree to disagree... I do not think it is cheating to go somewhere that more efficiently spends your tax dollars. I suspect you think you would rather live in a society where you do not have as many choices.
This is just government-enabled theft. Politicians promise people "free" stuff that is extracted by threat of violence from someone else.
Companies provide services that their customers choose to pay for. Profitable companies provide services efficiently so that everyone involved (customers, owners, employees) are better off. Their existence is a social good because profitable companies make everyone better off without coercion. They embody peaceful cooperation and civilization. They are not "supposed to pay taxes", except in the mind of politicians who seek to increase their own power and wealth by appealing to the envy and covetousness of their voters.
If you want something, make it yourself or get it from others through peaceful cooperation. Do not take it by force from someone else, either personally or through a proxy (government).
Edit: I realize that a world without coercion and violence is an ideal that will not be realized, but I think we should be trying to bring it about anyway. This means promoting peaceful exchange (free markets, private companies) and discouraging coercion and theft (government).
Sounds nice. Are there any real world examples I can study?
This article made me think of your reply:
The Endless Rules of Burning Man
If you love bureaucracy, Black Rock City is the alternative desert utopia for you.
https://www.citylab.com/life/2017/08/the-many-rules-of-burni...
If this self-selected group of hippies can't be "live and let live", then what hope is there for the rest of us?
Corporations don't pay taxes, they simply pass the burden on to customers/employees/shareholders. It would be simpler (and arguably it would allow the market to allocation resources more efficiently) if corporations paid 0 tax and people paid taxes. Consider this:
https://www.theatlantic.com/business/archive/2010/10/why-we-...
And you're right to point out that companies bid jurisdictions against each other. But many bid winners wouldn't get the facility without a special accommodation. I'm sure Apple chose this town because of the benefits, and this town is better off for it. I'm also sure this town wouldn't have been selected if there weren't any 'wooing' process, so this town is strictly better off.
If the town can serve its citizens with fewer tax revenue, then they're doing something right and hopefully they can expand and more people will choose to live there.
This helps incentivize communities to operate more efficiently and that's a good thing.
IMO the bigger problem is corporate free loaders. All the local walmarts use way more police time than the targets, but Walmart doesn't pay additional fees for the intensive use of police. The simple solution is a corporate tax but that isn't good because it doesn't incentivize more or less use of the police, ideally we'd charge them according to use which is different from a tax and more closely aligned with our preferences (e.g preference for less police work at walmart).
I really have a problem with this statement. It's not like Walmart is trying to gobble up police services. Your statement reflects the Bloomberg article written about this topic, which IMO is a flawed view. The pains that Walmart faces are similar to many other retailers in non-affluent areas.
I'm not saying the current allocation of police time is right or wrong, I'm just saying that I think it'd be different if Walmart had skin in the game and I think we'd be closer to the right amount of police time at Walmart if Walmart had skin in the game.
I understand making some deals, but this is slightly much. You wouldn't make a deal like "Oh if you open a bank here we'll exempt you from capital requirements".
The people in Iowa who have to subsidize this and don't have the billions sitting in the bank that Apple does?
I can't believe anyone really seriously takes this side of this argument.
Iowa was willing to provide their services at a hefty discount, so Apple chose to "buy" them from Iowa and not another state - but in any case Iowa gets money from Apple (just not the listed rate) and the citizens of Iowa are better off than they would have been if Apple wasn't placing that facility there and thus would pay zero taxes to Iowa.
It's not like when they give Apple this "discount" it goes along with a reduction in spending elsewhere. They're effectively reducing their tax revenue without any offset in costs and the tax payers have to make up that difference.
Offering the discount gets an increase in total tax revenue for Iowa and its residents, since it allows it to get something instead of nothing.
However, your argument certainly applies in a wider context - from the perspective of all states together it would make sense to not offer the discount and avoid the race to the bottom, but as they're not coordinated and each care about their own interests, then it makes sense for them to "defect" and offer such discounts to ensure that the facility gets built at their site.
And seriously. Going by history, people will suffer plenty before they are willing to become subversive for an economic cause.
I fully support corporations and individuals who exercise their capacity to do business elsewhere to save money.
While competition of this type promotes a race to the bottom it's the good kind of race to the bottom. Government is like an operating system in that it should do it's job as efficiently as possible. Every resource spent doing it's job is one that people society can't use to do what they want to do.
If for example the state doesn't want people businesses registering their fleets out of state then they should make the cost of doing so in-state competitive with the cost + hassle of doing it out of state.
The corporate tax for Delaware is 8.7%. How can that benefit a company in not paying taxes? I am sure there are other benefits in incorporating in Delaware but does not seem like it has any tax benefits per se.
Let's say I have a house or small business. Do I get a property tax abatement? If I don't, Apple shouldn't either. Big corporations should pay their fair share of taxes.
Imagine going to your city council, and pitching them a 50% bribe in return for a 71% abatement. You or I would be going to jail.
Even in the best case for "jobs created" (10,000) pushed by our politicians the state might as well just give 10,000 people $30,000 a year for 10 years.
Realistic estimates are saying the new jobs might be more in the range of 3,000, which is an astonishing cost of $1,000,000 per job.
[1] http://docs.legis.wisconsin.gov/misc/lfb/bill_summaries/2017...
What if nobody was willing to pander to foxconn at all? How much tax would they be paying then?
They could even pay those people $30,000 a year for ten years to work on civic projects and achieve even more 'profit' or return on investment.
It can't be Foxconn because the parent statement requires Foxconn doesn't come to WI.
WI getting back in tax a portion of what they paid out in full can't be a net income gain because the employee gets to keep some.
If it's an employer other than Foxconn, which doesn't get any deal, then I agree that would be best for WI. But which employer is that?
http://www.jsonline.com/story/news/politics/2017/08/16/how-w...
If it creates 10,000 local jobs, those 10,000 jobs are still going to get taxed. So the locale is going to get money, just not from the corporate tax.
So it's not a great deal but it's not a horrible deal. I'd prefer nobody made them but once on place does they all have to in order to compete. But if they built overseas they'd get no corporate tax either... so some slice of the pie is better than none.
edited, spelling.
That's a run to the bottom. Where's the limit? The USA is already lacking in education, health care, and infrastructure. This is only going to make the problem worse.
> If it creates 10,000 local jobs, those 10,000 jobs are still going to get taxed. So the locale is going to get money, just not from the corporate tax.
If those jobs have been created in another state without the tax cut they would have gotten the corporate tax and the local jobs taxes (both of them). So you can see it as one state stealing the job taxes from another state at the cost of giving back the corporate tax. One state loses, another wins. The USA as a country just loses because what one loses is bigger than the other wins (being the difference the corporate tax). Only the corporation gets a positive outcome. The country is now in a worse situation.
The U.S. spends more on education per student than any OECD country besides Switzerland. Even leaving out military spending, it spends more overall per capita than Canada and still doesn't manage to provide healthcare. NYC spends 2-8 times as much as European cities to build a mile of subway. Our problem isn't that we're not taxing Apple enough.
http://www.jsonline.com/story/news/politics/2017/07/28/foxco...
The "local jobs" argument is eroded further for Wisconsin when you consider that the proposed sites are all well within commute range for a large population of Illinois residents - something that didn't seem to occur to WI legislators until far too late in this "deal":
https://www.reuters.com/article/us-foxconn-wisconsin-illinoi...
As a Wisconsin resident who's town (near the proposed sites) is overrun with Illinois license plates this was an obvious issue from the beginning (on top of everything else).
My (somewhat cynical) belief is that Foxconn has been several steps ahead of our local politicians (who are desperate to put up healthy job numbers). This "realization" of the proximity to Illinois is likely (and unfortunately) the first of many ways Wisconsin is going to get schooled by Foxconn here.
Also, people commute, you can’t stop them all. That’s the nature for all business and it’s part of the game you play with these deals.
"... because Wisconsin already waives almost all taxes on manufacturing profits in the state, these incentives represent not a lost opportunity at collecting revenue but an obligation to pay cash to Foxconn out of the state treasury for up to 15 years."
Put another way:
http://fortune.com/2017/07/31/foxconn-wisconsin-plant-tax-br...
"Although the state measures to attract Foxconn are labeled tax incentives, they largely would be paid in cash since the effective Wisconsin state tax rate is 0.4% on manufacturers."
Of course people commute (and they should)! However, for a state negotiating an incentive package they should have been aware of this basic fact, especially given the extremely close proximity to another state that (amazingly) isn't contributing to the incentive package.
Sure.
> it's not a horrible deal.
Less sure on this, I can see the argument that the sheer scale of the Foxconn credits could allow an end run around the normal plant operations and give them competitive advantages against other (tax paying) businesses. That would be bad and, as a precedent, it could be horrible.
Iowa isn't "giving money." It does not have the additional revenue before Apple arrives, thus, it can't give anyone those revenues. All it can do is tell Apple you have to give us, Iowa, less than the state next door... now whether this is a good economic plan I disagree. I'd rather have a thousand small businesses be guaranteed no regulatory or other fees for the first five years than a corporate overlord be granted no requirement to pass on the enormous amount of wealth they extract from the land and environment but that's another discussion...
And even if Iowa isn't "giving money", somebody is. Maybe without the Iowa deal, Apple would have located in Kansas or Illinois and now those states are losing out on the money.
And fine, maybe you say the deal wouldn't happen at all unless some state gave this deal; the deal is a requirement for the datacenter to exist. OK then. So why would we make the deal? Aren't the point of these regulations to incentivize land use in a way that we as society want? If we as a society decide farmland is incentivized over datacenters (by having lower taxes for that land use), then so be it. Why is putting a datacenter on the land assumed to be "good" when our tax laws say the opposite?
That doesn't make sense. Perhaps you meant to say if there's 100% chance Apple would have built there anyway?
> “There is virtually no association between economic development incentives and any measure of economic performance,” urban economist Richard Florida concluded in 2012. A study of his found “no statistically significant association between economic development incentives per capita and average wages or incomes; none between incentives and college grads or knowledge workers; and none between incentives and the state unemployment rate.”
And look, maybe this economist is wrong. But I'm not sure why the knee-jerk reaction is that a datacenter is so good that who cares if a deal like this is made. Shouldn't the people who make this deal have to prove why it is necessarily?
And if datacenters are so good for our society, why should Apple get the tax break and not everybody else? I'm quite sure there are other datacenters in Iowa provided the exact same benefits of this Datacenter while still paying the legal tax rate. I could also argue that this form of unfairness is itself a cost Iowa is paying when they make a deal like this.
Even if the economist is right, there's still benefits to Iowa being there beyond economic development. Besides the fact that Apple is contributing money to a local infrastructure fund (even if it's just $20M instead of $100M), Iowa is in fact still taxing Apple, just at a much lower rate than they would have without the tax breaks.
> But I'm not sure why the knee-jerk reaction is that a datacenter is so good that who cares if a deal like this is made.
I think it's because this deal doesn't actually hurt Iowa. The only thing lost here is potential tax income if Iowa hadn't offered the tax break and Apple had chosen to build there anyway. It's not like Iowa is handing out cash to Apple.
> And if datacenters are so good for our society, why should Apple get the tax break and not everybody else?
Others do get tax breaks! Note here that the tax break offered to Apple is in fact the exact same one offered to farmers. The tax break here is just taxing Apple's data center at the same rate that Iowa taxes farmland.
> I'm quite sure there are other datacenters in Iowa provided the exact same benefits of this Datacenter while still paying the legal tax rate.
That's certainly possible. It's also quite likely that they negotiated their own tax breaks before building their data centers.
> I could also argue that this form of unfairness is itself a cost Iowa is paying when they make a deal like this.
How would you go about arguing that? "unfairness" isn't really something you can measure or put a cost on.
That's incorrect.
The question is does the apple datacenter consume more of the state's resources in dollars than the state gets back in taxes? Services provided by the state and county include regulatory, legal, educational, emergency and safety, transportation, etc.
Then there's the cost of the environment, e.g. do they cause an increase in pollution due to their increased use of electricity?
So while I would say that it's unlikely they would cost more than the taxes they would pay, it's not guaranteed either. So yes, they could in fact be "giving money" away.
It followed the incentives sure, so from that point can't blame it, but it had cost Dayton, an already struggling city, even more pain.
Another motive behind forced moves is to shed experienced (and thus expensive) / senior people who had been there longer. They are more likely to have families, kids in schools, homes, etc and so might not move.
http://www.npr.org/sections/money/2016/05/04/476799218/episo...
Dumb question: how do these deals not violate the Equal Protection Clause?
Other businesses in Waukee obviously aren't privy to the same state tax credits from Iowa and the same tax abatement from the city of Waukee. Doesn't that mean that the tax code is effectively discriminating against all these non-Apple businesses?
Sure they are - they can request it, just like Apple does, and be evaluated on a case-by-case basis. It's no more an equal protection violation than city government hiring one person over another is.
http://taxprof.typepad.com/files/65st0033.pdf
You've piqued my interest here. It does seem a bit strange.
However since we have no data on the cost to Iowa or Waukee we can't say whether or not this is cash positive to the state or county.
My guess is because the payment is variable and a function of the size of the facility Apple is basically paying for its hookup to streets, water, electricity, etc. with a park thrown in on the side.
The governor may have to call the legislature back into special legislative session again next month because revenue is again coming in less than expected.
The three state universities will be increasing tuition 7% per year for each of the next five years because of budget cutbacks caused by these revenue shortfalls.
Part of the decline in revenue is due to the decline in the ag economy, but some have also attributed it to the increasing amount of tax breaks like these that Iowa has been giving out.
Furthermore, this is not just farmland. Waukee is a west Des Moines suburb, the fastest growing part of the state and supposedly one of the fastest growing parts of the US. If Apple hadn't purchased that land, it likely would have been purchased and developed by someone else soon.
[0] http://www.latimes.com/business/hiltzik/la-fi-hiltzik-price-...
It's always sold as an investment that will pay off, but in reality it's - In My Cynical Opinion - about local pride.
With an NFL team, Shelbyville becomes a major city, and with an Apple data center Iowa becomes a high tech state. Expensive, sure, but the good things in life aren't free!
It could still be a bad deal, but there is not really an honest attempt to figure that out here.
Specifically this claim: "There is virtually no association between economic development incentives and any measure of economic performance."
The article states that the 1.3 billion dollar data center will get $39 million tax break up front on hardware, and another $190 million abatement over 20 years from the city. They will invest at a minimum $20 million into Waukee, a city of 20k people, and expect 50 permanent employees + ancillary services.
Waukee will see a construction boom, higher employment, and more tax revenue. The state will see a reduction in the data center decline + additional tax revenue.
Unless they were sure Apple had no other option but Iowa for this project, the state and community were better off making a deal than not.
The city will also now have a major corporation throwing its weight around to get its way; one with no loyalty to the residents or their concerns.
Iowa can't do that. But the USA can. If another state (instead of Iowa because of the tax break) has gotten the revenue of that taxes and the federal government gets it from that state. The USA can give that money to the Iowa residents.
Exactly! And by their very nature, free-markets are susceptible to races-to-the-bottom. https://en.wikipedia.org/wiki/Race_to_the_bottom
So, yes, here they are at work doing one of the examples of free-market behavior that work against the public interest.
Here's another variant of my comment above: If all the workers refused to work in abusive conditions for low pay, the companies would still need to hire workers. And you could reply "Why would workers refuse that? Accepting abuse and low pay is a pretty obvious means to convince a company to hire you over others — the free market at work."
Are you one of those people who blindly thinks that the algorithm of "free market" necessarily (tautologically) results in the best situation for everyone?
The entire concept of a corporation exists within a government framework, not a completely free market. They are a complex organization of people making decisions as a unit. So too can states do the same or even work together and decide collectively not to make decisions that worsen the state-vs-corporation power structure…
I was actually thinking that this was an example of a Nash Equilibrium. It's basically like the prisoner's dilemma. If all the states cooperated and refused to offer tax breaks, that would be good for all states. But if a single state "defects" and offers tax breaks, that state reaps the rewards of its defection. Unfortunately this leads to all states "defecting" and offering tax breaks, which leaves the states in a worse position than if none of them offered tax breaks.
> So, yes, here they are at work doing one of the examples of free-market behavior that work against the public interest.
Yep, that's true, but there's not really any way around it in this case.
> Here's another variant of my comment above: If all the workers refused to work in abusive conditions for low pay, the companies would still need to hire workers. And you could reply "Why would workers refuse that? Accepting abuse and low pay is a pretty obvious means to convince a company to hire you over others — the free market at work."
And that's why unions exist. But that won't work when we're talking about states.
> Are you one of those people who blindly thinks that the algorithm of "free market" necessarily (tautologically) results in the best situation for everyone?
Haha no (but thanks for asking instead of silently assuming!). But the "free market" is what we have (even if it's not always, or even often, really "free"), and it results in consequences like states offering tax breaks, and there's no real way around it beyond tearing up our government and starting over because I seriously doubt you could ever convince all 50 states to outlaw tax breaks for companies.
I think your Nash Equilibrium point is spot on, but it's fair to describe a breakdown in that as turning into a race-to-the-bottom.
> why unions exist. But that won't work when we're talking about states.
Oh, but that could. There's no inherent reason why states can't coordinate. They could do so in a weak fashion (i.e. recognize the need to maintain the equilibrium and just all do the right thing) or a strong fashion (lobby the federal government to step in and bar this sort of behavior).
As to your last paragraph, you could definitely convince me of that. I have seen evidence, however, that some places realize that they can refuse to play this losing game. A state can reject the growth-ponzi-scheme ( see https://www.strongtowns.org/the-growth-ponzi-scheme/ ) for example and just let the other states play the race-to-the-bottom while they encourage positive economic activity through other means.
That's like a store refusing to slash their prices to compete and instead finding some other way to convince customers to stay loyal and not just focus on price (perhaps service is better, experience is better overall, etc). In the case of states, they can get great education, quality of life, protect the environment, and realize that they will prosper long-term and refuse to join the race-to-the-bottom. Enough states refusing to play race-to-the-bottom can bring back an equilibrium eventually.
The 50 jobs at the data center will attract a McDonalds across the street and then Waukee can hit those McGuys with a Burger Tax.
Let's see. $208M at 5 cents per burger is only, uh, ...
Well, the company slogan is "Billions and Billions Served."
The Facebook data center in Altoona is on building 4, after all: http://www.desmoinesregister.com/story/money/business/develo...
It’s a much easier choice to expand an existing facility than to create an entirely new one.
But it proves the asymmetric negotiation power Apple has compared to constituents. Apple is in a position to say, take it or leave it. And the constituents can't really do that, for them to move elsewhere is much more expensive, for possibly not much of a gain. So basically Apple gets a significant advantage because local officials are looking at money rather than fairness. Why doesn't everyone get the same discount? Oh well, that wouldn't work would it?
It also shows that at scale the property taxes are possibly too high. Which means the property taxes in general are probably too high. But now, because of this "deal", the constituents have even less negotiating power to get their taxes lowered, because the local government sold them out, and now depends on their taxes even more seeing as they can't raise Apple's property taxes for 20 years per this deal.
"This puts Iowa on the world stage," Gov. Kim Reynolds
Debi Durham, director of the Iowa Economic Development Authority, "All eyes are on Iowa for building this technology ecosystem," she said
The handful of eyes that give a crap about this story, will see how far Iowa has debased themselves. Iowa just got its 15 minutes of fame, it's already over, you're not getting anymore out of this deal than what's already happened. Unless of course, you whore yourselves out yet again to another company. That's what you've just advertised, Iowa.
Two perspectives from inside Iowa:
http://www.desmoinesregister.com/story/news/2017/08/25/7-thi...
http://www.desmoinesregister.com/story/opinion/readers/2017/...
Its a race to the bottom.
I'm interested to hear how other states stack up against this and if this factors in at all.
The part of this that's unclear to me is how much is Apple paying to Iowa as income tax, sales tax, etc? Even though apple may be selling services out of that data center, I'm not entirely sure it's taxable. It would be different if Apple were selling physical goods. In which case, high property taxes might be justified completely.
Some property tax revenues or no property tax revenues?
A silly race to the bottom.
Oh great, so you carefully gathered data and put it into some sort of spreadsheet or something? Where's the spreadsheet? Where's the decision tree that shows this is a bad deal for Iowa? Oh, you don't have any of that actual diligence? You started with a conclusion and then wrote a bunch of B.S. with cherry picking and misleading statements throughout? This is why I flagged it.
Can you expand on this and point to some of the misleading statements and why you think they're misleading?
"State and local officials in Iowa have been working hard to rationalize their handout of more than $208 million in tax benefits to Apple"
That sentenced is aimed to make it sound like the state is giving $208 million to Apple. That is false. If Apple is going to pay $300M in taxes to Iowa, then the state is getting $100M by having Apple come, and $0 if Apple goes to another state.
"These corporate handouts might make sense if they spurred economic growth. They don’t."
First, that sounds overly confident. And then to support it the author cites two cherry-picked articles.
"Unless that expansion occurs...Apple is guaranteed to contribute only one-fifth as much as people were led to believe."
Okay, where's your spreadsheet modeling the probability of the expansion occurring? Because if it's 80% likelihood, then the $100M figure is accurate.
I don't say I disagree with the author's main claim that the system is flawed in that we have lots of government entities having to negotiate individually with bigger companies (I'd prefer a simpler tax system across the board in general), I'm just saying in this particular case the author has provided no detailed numerical justification why he is right, which leads me to believe he is in fact, likely wrong.
On one hand they're trying to be this tech savvy state by bringing in Apple and Google data centers, on the other hand getting decent broad band is terrible in all the rural parts of the state.
So they did what any conservative state would do and relied upon the free market to get them high speed bandwidth. And that's not been real successful. So they had to subsidize it.
From this article in 2015 [1]:
"Four communications providers have received more than $53 million in federal funds to expand high-speed Internet service to nearly 90,000 rural Iowa homes and businesses."
That's roughly 3% of the population.
Okay, so one might say that's just the cost of doing business. The thing is that Iowa already has a $200 million dollar fiber optic network that connects all 99 counties with over 8000 miles of fiber called the Iowa Communications Network. So why don't they use that to extend broad band to rural areas?
From the Iowa Communications Network home page [2]:
"The ICN provides high-speed flexible broadband Internet, data, video conferencing, and voice (phone) services to authorized users, under Code of Iowa, which includes: K-12 schools, higher education, hospitals and clinics, state and federal government, National Guard armories, and libraries"
That's awesome if you're an authorized user. But the sad part is there is more than just those users that could use broadband, and it seems like Iowa decided to leave them out in the cold.
[1] http://www.thegazette.com/subject/news/business/rural-iowa-g...
Which does little if anything. You want Apple and Google offices and manufacturing. Corporate datacenters don't really bring anything to your town/state. Regular datacenters that are open to other companies do.
A huge portion of the people I've met in tech are class-A douche bags. They are obsessed with salary, or the fact that they work for X instead of Y. They are extremely elitist.
All of my friends who went to high school in the Bay Area have classmates who killed themselves over (lack of) prestige.
You won't see any of that in Iowa. It is a much more honest place. People work hard but aren't obsessed with where you want to college or how much money you make.
I would be genuinely sad if Apple or Google opened a SWE location in Iowa. The culture is basically the antithesis of the old Midwest.
Edit: That said, and reading other comments here, I am curious just how bad of a deal this really comes out to overall. Perhaps the article is really just cherry picking arguments but it does paint a very grim picture.
As a former "data center grunt" for Google, I can tell you that total comp was around $140k, which was great for Iowa. The fix-it roles made less and the security guards made just a tad bit over min wage.
role model