Amazon’s HQ2 Spectacle Should Be Illegal

When we're talking about pitting strapped local governments against each other in corporate welfare bidding wars, the answer is, absolutely, unequivocally, yes.

I think this could be argued. The thing about democratically elected politicians is that while you can't "force" them to do something, there can be enough political pressure to effectively compel them to do something. In this case, any city that passed on this opportunity would have to describe to their constituents why they didn't want to bring 50,000 high-paying jobs to their city. It's much easier to just play ball, hence over 238 submissions.

> Should we dispense with competitive processes completely? Why have the Olympics, for instance, because it's such a waste of time for everyone that doesn't medal?

Do the Olympics change the rules in the middle of a competition like Amazon did?

> the Scott Walker/Foxxcon debacle is a completely different category than the HQ2 situation.

It is different in many ways, but also similar in a number of ways. Specifically, both used the promise of X number of jobs to extract a set of concessions, then proceeded to chop that jobs number in half.

I certainly wouldn't base my calculations on it

The construction jobs come from building out the space and necessary infrastructure upgrades are paid positions that often are contract. They aren't permanent but they count for additional tax revenue. As is the revenue of the jobs created by the spending from the additional HQ2 positions (25k jobs requires X new lunch locations, Y new fitness trainers, etc). That is the halo effect.

But do we think the jobs that the new Amazon hires are vacating will go away? Seems probable that many of them will be backfilled, and potentially at a higher compensation rate than they were before, since there'll be more demand for software engineers in the market after Amazon has moved in.

But if those other companies then have to fill the vacuum by hiring even more, then it's still a + per job; and arguably more because increased liquidity in the job market results in more competitive salaries.

It would be perfectly legitimate for federal rules restricting ruinous competitions such as these. There are, in fact, many examples: Minimum wage, or the workplace safety and wage restrictions in trade deals like NAFTA, or very explicit rules against certain subsidies.

Sane jurisdictions that consider the possibility that cooperation may, in very rare and limited circumstances, not the end of humanity are much stricter: the EU limits subsidies to temporary measures only, and also puts limits on bespoke tax deals with individual companies.

Higher rent means higher property valuation, which means increased property taxes. In Manhattan (and other places like Florida), there is also a tax on all commercial rents that would grow. I don't think Long Island has one though, so just the property tax growth.

Regarding gentrification, Economist has a great article on the unsung benefits and highlights some studies showing displacement is not as widely perceived. People's opinion changes when you call it "revitalization", "redevelopment", or even just "development".

https://www.economist.com/united-states/2018/06/21/in-praise...

Maintaining infrastructure and services for residents of a city costs money. Adding ~25,000 residents will absolutely increase these expenses. The additional tax revenue will almost certainly more than cover it. But let's not pretend that tax revenue is "free".

Yes they will easily generate more than $6,100 in revenue per year for the city from income tax alone (6.65% is the NYC current tax rate in the $79,000 - $215,000 income bracket. This would bring in $7,248.50 a year based on the average of $109K income from income tax alone. Yes these employees will buy lunch everyday, they will buy TVs and iPads and bed sheets and alcohol and stuff. They will pay 8.85% sales tax on all these goods (only 4.5% of which goes to the city). If we assume they spend 50% of their income on sales taxable goods then they would pay another $9,646.50 a year in sales tax.

So the question is how much on average does one citizen cost the city (the burden cost). As long as it is less than $16,895 (the sum of both previous figures) than things should be ok.

The city also monetizes its' citizens through other means such as traffic tickets, property tax, state lottery sales, cigarettes, alcohol purchases, etc. So this $16K number is a low-ball figure.

I am inclined to believe that the burden cost of a citizen is well below $10k a year. For easy math if we assume that a citizen does cost the city $10k per year, and the tax subsidies do cost $6,100 per year then that means the overall burden cost is $16,100 which would be the break-even point for an amazon employee. Money the city can earn on that employee above that figure would generate a net-benefit for the city. Anything below that figure would be a net-determinate to the city.

Here's some stats: https://ballotpedia.org/Analysis_of_spending_in_America%27s_...

NYC spends $8,690 per year per capita, and NY spends an additional $6,804 on top of that. So we're looking at $15.5k spent per year on the average citizen across the state and city. Thus your break-even is actually around $22k in state/local tax revenue per Amazon employee. And in order to reach that, your average single filer Amazon employee will need an income of $230k according to this calculator: https://smartasset.com/taxes/new-york-tax-calculator#UDJIdPT...

Note: I haven't taken property or sales tax into account here; feel free to make reasonable assumptions and do your own math. This will bring the $230k figure down.

Here, it would be enough to stop these bespoke, one-company deals. Because no state could afford giving such rates to all companies, the practice would end.

That's exactly what has happened with most offshore tax haven over the last decade or so, btw.

Getting an Amazon HQ, as a cornerstone employer in their city achieves that. Or at least, that's the general economic consensus.

> If you go buy a new car, you haggle with the dealer. That's just something you do. You have total control to walk out (you have more power,) and you wanted the new car (initiated.)

If a dealer offers me a shitty deal, I can go across the street, to another car dealer. Likewise, if my offer sucks, there's no shortage of other people buying cars.

How many companies are wooing cities with 50k jobs, right now?

The two also don't have to be mutually exclusive. You can look at what Amazon did and say "That's not a business practice that should be followed," while still saying "State and Local governments shouldn't be allowed to offer funds in this manner."

Because the data shows it won't be wild for your town. It won't reverse economic decline, and everyone's lives will not improve. You are being prevented from locking your local governing body into a poor deal (whether because you don't know better as a politician, or because you do know better but don't care, as you'll be out of office by the time it matters [which happens so often it's cliche at this point]). I might be more amiable if you're willing to personally guarantee the financial benefits out of your own wealth, so you have skin in the game (alternatively, the law could require a supermajority of voters support the measure, with a minimum voter turnout requirement).

These measures to protect against tragedy of the commons are not new, nor the arguments such as yours against such protections.

At least there should be requirement of a level playing field. How come that granting tax benefits and various other huge privileges to say Foxconn or Amazon is supposedly good for local economy while granting such perks equally to other businesses isn't a good thing? Shouldn't the first thing government to care about be the level playing field and not skewing it in favor of chosen players? I mean a typical Joe can't just come down to your Colorado town and setup business on the same conditions as Amazon or Foxconn. Why such an injustice?

Once a town bids, then some town somewhere gets a small fraction of the benefit, and Amazon gets the remainder.

We also have laws to make sure government purchases are made by means of suppliers bidding on government contracts. Giving out arbitrary tax breaks should probably go through a similar process for the same reasons.

In the end it's only a multinational and a very local economy getting a boost. The public purse as a whole takes a very serious hit.

Remember that Amazon needs to build this stuff somewhere. They don't need a subsidy to achieve this.

That is not to say that all subsidies all awful, they just need to be managed at the level where the people getting the benefit are the same as those paying the price.

While we're at it you, the single individual in charge of making this decision, may be in favor of something but your community may be entirely opposed to it, but they can't vote you out until the bid was already placed and you bankrupted the city.

Also, you may be burning the current citizens for the prospect of these future citizens that the company might bring with it. You're hoping to drive out all those gross poor people and replace them with smiling rich tech managers. Never mind that you have no actual plan for where these gross poor people will go, that's their problem. You're building the beautiful city of the future, and you can't make an omelette without breaking some eggs amirite?

e.g. imagine no one had offered any incentive to Amazon. They almost certainly would have ended up in NYC and Washington D.C. anyway, but the taxpayers in those locations would be saved footing the bill for their arrival and taxpayers elsewhere would be saved footing the bill for coming up with proposals, which only existed as leverage for Amazon in getting a better deal elsewhere. Likwise competitors with Amazon would not have to contend with a rival who is getting government subsidies. Overall the free market actually benefits from this intervention.

The number of jobs and investment are fixed. For the nation as a whole, these competitions only forgo tax revenue that instead goes to Amazon's shareholders.

And you can't just make the argument from the winning city's perspective. The right approach is something like the 'Veil of Ignorance': imagine being randomly assign to live in some city/town, and find a policy that maximizes your expected utility.

I also don't quite understand the heroic pose you strike for handing out subsidies. It's not like such self-impoverishment requires any skills on the part of the administration, except a willingness to sell out your citizen. Cooperating with other jurisdictions to form a cartel against such competitions would increase everyone's tax revenue, and still allow you to compete with factors that actually benefit your citizen, like good infrastructure or education.

Unfortunately, what usually happens is that a dozen people make a deal for a huge population that affects them in a big way.

this whole episode makes me reflect upon the Tesla Megafactory bidding process where Musk played California off against other states. Ultimately Governor Brown made some comment about how Tesla was just asking for too much and it didn't make sense for California. So it went to Nevada.

And, what I wonder is: is there a consulting firm that serves as an intelligent counter force to Tesla and Amazon et al? Musk and Bezos are supposed to be hyper-smart so is there, say, a branch of Goldman Sachs that can hyper-intelligently advise state/city leaders about this particular kind of divide-and-conquer corporate predation (if that's what it is)?

My point is that there are cities in the United States that attracting talent, creatives, and business investment and instead of crying foul, we should learn about what they're doing and seek to replicate it.

If Amazon had chosen Austin or Pittsburgh, plenty of people would still be complaining, although Maybe not as much as NYC and Washington.

Not to a single entity.

If it's made illegal to subsidize individual corporate interests through tax incentives, direct subsidies, what else can be done?

Zoning? That to me is actually a legit thing. If Amazon wants to build 5 buildings next to downtown, on land that isn't currently zoned for that - it makes perfect sense to consider that. For any company frankly. It's the cities job to accomodate various interest with zoning.

So what else is at a politicians disposal?

No much.

Maybe guaranteed contracts ... but even then, that's not such a bad thing so long as the company is getting value. Moreover, I don't think cities are big users of any of their local companies things.

Bombardier always threatens to leave Montreal as they try to get giveaways elsewhere ... it's not like Phoenix Arizona, which was going to give Bombardier a big chunk of cash to open a factory there is going be buying jets or snowmobiles.

So I think that 'making it illegal' would definitely quash most of this activity.

And FYI if politicos try to bend the rules, they open themselves up to lawsuits.

So I think it's possible.

The idea that limiting other race-to-the-bottom avenues similarly would inherently being catastrophic is not supported by good reasoning or evidence.

The point in the context of this discussion is that you would nearly require a constitutional amendment to enforce the basic principle that a law should apply fairly and equally to all. Think of it adding the idea of equal obligations to balance the idea of equal rights. If we want an antitrust law that applies to businesses, then it should also apply to the business of baseball [1]. If we are to have a copyright that expires, then there should be no special exemption for the works of Mary Baker Eddy, but as a matter of legal principle not religious freedom [2]. It would challenge all sorts of special exemptions for specific companies and industries, and reduce corruption by making a large amount of lobbying pointless.

[1] https://slate.com/news-and-politics/2002/07/why-does-basebal...

[2] https://www.nytimes.com/1987/09/23/us/christian-science-text...

As much as the boogieman of "teh globalizations" gets thrown out any time anyone suggests any attempts to regulate domestic markets, you can't just move everything away from the US. The labor force is needed. The consumer market is needed. The infrastructure is needed. The proximity to other companies is needed. The real estate is needed.