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Comment by cepth | Hacker News Reader

Some back of the envelope math. Amazon is receiving $1.525 billion in incentives from NY state and city, conditional on creating 25,000 jobs (https://www.nytimes.com/2018/11/13/nyregion/amazon-long-isla...). That's $61,000 per job, paid out over 10 years.

From a purely fiscal point of view, do we expect these jobs to generate $6100 a year in additional tax revenue for the state and city? That would be the "breakeven point". This could come in the form of additional state and city income taxes, consumption that is taxed, etc. Payscale says the average Amazon software engineer makes around $109k (https://www.payscale.com/research/US/Employer=Amazon.com_Inc...).

If we believed that Amazon is actually creating 25,000 NEW jobs, as well as jobs that otherwise would not exist, it seems pretty reasonable to say that the state and city come out ahead net-net. However, I have trouble believing that the "knowledge workers" who will join Amazon would otherwise have been unemployed and underpaid. Factor in the various negative externalities of increased commercial and residential rents for others, potential traffic/congestion issues etc., and it seems like Amazon got a sweetheart deal.

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Thank you for running the numbers. How can we price in the wasted time/effort of the dozens of other cities who put in bids? How about the many millions or perhaps billions of dollars of free advertising and air-time taken up by this charade? I am neutral on Amazon specifically but surely we should not allow big companies to run roughshod all over our desperate cities? Look at Foxconn and Scott Walker for another example of companies harming and exploiting a metropolis/state. It really rubs me the wrong way.

How can we price in the wasted time/effort of the dozens of other cities who put in bids?

Be reasonable. That's an absolutely ridiculous counterpoint, and a perfectly reasonable answer is "assign it zero" since no city was compelled to apply. 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?

Further, the Scott Walker/Foxxcon debacle is a completely different category than the HQ2 situation. However, it is not going to be productive discussing the reasons that an ostensibly large manufacturing site was situated in an electoral battleground state with substantial involvement at a federal/executive level.

Should we dispense with competitive processes completely?

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

What we're talking about is the time spent putting together a report and emailing it to Amazon in this case. I'm not talking about jurisdiction shopping (which is gross whether it's corporate domiciles in DE, lawsuits in east TX, or if you want to make the case that's what HQ 2's process amounted to).

What was asked, and what I answered, was how to account for the time of municipalities that answered the RFP. Since they do not have to actually offer any of the proposed subsidies since they lost, then I think it's fair to assign no value to the cost. If you disagree, please feel free to tell me what price they paid instead of downvoting.

Cities actually spent quite a bit of money on hiring consultants, site planners, doing impact studies, etc. I don't think it's unreasonable to say mid to high 7 figures.

-https://www.consulting.us/news/290/consulting-firms-recruite...

-https://technical.ly/philly/2017/09/13/site-selection-consul...

This is not to mention that cities likely had to hand over demographic data that would've otherwise been very expensive to collect: https://www.businessinsider.com/amazon-hq2-search-data-2018-....

Look at some of the cities that made the finalist list:

-Columbus (population ~880k)

-Denver (population ~700k)

-Indianapolis (population ~870k)

-Nashville (population ~667k)

-Newark (population ~285k)

For these cities, an additional 25k jobs would have been huge. Scott Galloway has advanced the theory that a large goal of the HQ2 search was to secure competing bids, which Amazon then took back to NYC and DC in an attempt to secure better terms. If these "finalist" cities were simply used as stalking horses with ~0% chances of actually winning, I can't help but feel it was a little wrong to induce them to spend the necessary fees on consultants and planners to put together a decent bid.

If it was actually their plan which it very well seems like from the way everyone is talking about, wouldn't this actually be fraud rather than just unfair?

It sounds like the sort of casual fraud that megacorps routinely get away with.

There was no commitment, and there was no false information. How can there be fraud?

I do the same thing Amazon does all the time, to get the best price. I don’t need to be honest and tell the seller I’m using them to get someone else’s price down. Maybe I do go with the new seller if their price is good, maybe it’s not good enough to sway me from the other seller. It’s just business.

I am of course not a lawyer. But there's a whole lot of difference between casually asking a seller a price or haggle vs. asking for a formal bid for something. I think in a formal bid the expectation is that you have a reasonable chance to win given the expense needed to answer a bid.

> no city was compelled to apply

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.

>while you can't "force" them to do something, there can be enough political pressure to effectively compel them to do something.

>any city that passed on this opportunity would have to describe to their constituents

So, democracy in action? Constituency wants something, and politicans have to obey? Or do you prefer politicans to decide by themselves and not having to explain their decisions back to their constinuents?

So the point is that, being a democracy and subject to societal pressures, you can't assign that value to zero as that is unreasonable.

"Democracy is the theory that the common people know what they want, and deserve to get it good and hard."

-- H.L. Mencken

Nope, no city was compelled. That was intended to be a rhetorical point, because it's so obviously not the case. Did anyone feel pressure to because of constituencies? Maybe. But compelled? Absolutely not.

You have a point that the Olympics analogy isn't great. One other flaw is that cities aren't contractually bound to deliver the promised incentives, either. Olympic athletes can't change their performance after the fact.

I find myself in an uncomfortable situation, where I'm defending Amazon (who I have no relationship with aside from being a customer) and not even liking the HQ2 selection process, even a little. But it's just hardball negotiation that was conducted a bit more publicly than countless other site selection processes for countless other companies.

fwiw, i think all of the amazon concessions are tied to the number of jobs specifically. at least that was true for the Nashville office which I've followed more closely. i.e. to get all the breaks they have to create all the jobs.

Unfortunately I think casting Amazon as the villain here is incorrect. I say unfortunately because that would be the convenient thing to do. But Amazon doesn't have an obligation to repair America's infrastructure or create jobs in cities that haven't succeeded in attracting skilled employees in large numbers. If Amazon believed they could legally gain an advantage by having cities compete against each other, they are almost obligated to do so. But perhaps there's a less cynical way to look at it. Maybe Amazon really didn't know at the outset which city they would pick, and only after considering everything submitted to them, concluded there wasn't a strategic case to be made for putting a second HQ in a city other than DC or NYC. I actually believe that to be the most likely scenario, but maybe I'm naive.

The unfortunate fact is that the politicians who emptied their pockets are to blame. But they too are only doing what they believe both benefits their constituents and of course helps them stay in office. To put it another way, if the mayor of Pittsburgh said "we aren't going to play ball and give a handout to one of the largest companies on earth" people who live there probably would have revolted. I don't think there's a good solution except for voters to become smarter about how their budgets are spent and make clear to politicians they don't want tax dollars wasted courting a company that doesn't need any government assistance.

Totally agree with you. I'd like to know what happens if a city doesn't hold its side of the deal, perhaps on a technicality; can the other party sue -- and win? Has it happened before?

I didn't see Bezos pointing a gun at anyone's head to force their city to bid. This is 100% on them, if they thought it would be a waste of money, they could've opted to spend nothing. "Running roughshod all over our desperate cities", while a fun turn of phrase, completely and utterly misrepresents what happened here. Don't blame Amazon for the actions of local governments, though I know it's the easy/lazy way of approaching the problem.

There was still lots of local pressure from Chambers of Commerce type folks to get cities involved. And if they didn't apply, civic leaders would be accused of being anti-jobs. So a lot of pressure to get involved even if not straight from Mr. Bezos.

That's life in government, I guess. It's as if they were elected precisely for the purpose of making tough decisions that affect everyone.

That's rather the point: when all actors are behaving rationally, yet the outcome is not something that is good for society, we need to change the rules to change behavior.

One might make the case that the cities were not acting rationally.

Its rational to not entertain amazon's offer only if you know for certain nobody else will either. The first one to defect gets everything.

https://en.wikipedia.org/wiki/Superrationality

This is like paying Tom sawyer to paint the fence. It's okay to let the other kids outbid you.

I'm not sure I'd agree with that. For instance, I think the Nashville deal is fantastic for my city/state. we are getting 20% of the jobs (5k vs 25k) for "only" about 100 million compared to several billion from NY and VA. It will easily make that back in benefits to the local economy and increased tax revenues.

Indeed, it’s a little disappointing how reliably the tired argument of “no one is forcing them to” comes out on HN, as if generations of social reforms addressing such arguments as “no one is forcing impoverished families to send their children to the factories” never happened. Your observation is an excellent encapsulation: All actors are behaving rationally, to a net social loss, and thus the rules need to change.

"when all actors are behaving rationally, yet the outcome is not something that is good for society, we need to change the rules to change behavior." +1!

Is there also a possibility of an incalculable factor which will yield a return on investment given that this project would bolster a middle class thus creating an increased likelihood of higher education for the next generation? My point is that something like this is never fully thought out and the future isn't written yet. These projects could boom or bust.

>Is there also a possibility of an incalculable factor

I certainly wouldn't base my calculations on it

This is often the case with government grants to cities as well. The cities that put together bids collectively spend more than the amount of the grant back to the winning city.

> From a purely fiscal point of view, do we expect these jobs to generate $6100 a year in additional tax revenue for the state and city? That would be the "breakeven point".

You need way more than $6,100 per employee per year to reach break-even, as those employees will have definite costs to the city in the form of expenditures on services.

Strict cost accounting isn't really the right framework to use because cities have many people who cost more in services than they earn in tax revenues. You can't get rid of them because they're "unprofitable", and it isn't a city's job to turn a profit.

>>You need way more than $6,100 per employee per year to reach break-even, as those employees will have definite costs to the city in the form of expenditures on services.

will they not rent and buy sandwiches from the area? Or pay the NY state /NYC income tax? Or sales tax on a lot of stuff they buy /spend? NY comes way out ahead, IMO, over 10 years. Amazon pays $100+k salaries for such staff

Will none of them ever require police assistance? Fire protection? Will they ride the subway? Will they use the streets and bridges? Will they drink city water? Or use plumbing? Will they vote?

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".

>>But let's not pretend that tax revenue is "free".

Oh, in NY and similar cities surely it is not free: you pay a substantial state tax AND a city tax. Not to mention a fat sales tax and fees on roads and bridges. But if you rent in X neighborhood and live there you generally paid your dues on services.

Let's not forget that people (especially AMZN /GOOG / FB employees) also pay fed taxes, that trickle down to states for infrastructure etc etc. Not crying about NY state fat cats wanting $500K pension after "working" for the state.

Brooklyn resident here ;-)

But I think you may have missed my point: there are expenses for city residents. A non-zero percentage of these new residents' tax revenues will be spent on the residents themselves.

Just for the sake of accuracy, most of the Northeast states are net givers in terms of federal taxation.

I.e. for every $1 that NY sends to the federal government in federal taxes, it receives something like ~$0.80 in spending: https://www.osc.state.ny.us/press/releases/oct17/100317.htm. Most of the money that NY receives is for Medicaid and other entitlements.

NY receives every year a total of $165 per capita for transit, slightly less than the national average of $168. When considering the cost of labor and materials in NY, that gap is probably much larger in real purchasing terms.

On the other hand, NY state directly spends $639.2 per capita on transportation annually: https://www.usgovernmentspending.com/year_spending_2019NYdn_.... The actual cost of the "pensions" you deride is $1085.2 per capita per year to the state. If you look at total state and local spending, the total costs of pensions are $1758 per capita per year, and transportation is $1788.8 per year. Neither reaches 10% of total statewide spending.

This doesn't directly negate your point about federal money trickling down, but NY is not receiving very meaningful assistance from the federal government.

I am sorry, but a lot of states--if not most--have lower taxes than NYC. Amazon is bringing 25,000 people earning probably over $100K per person and Amazon will be here for (at least) another 20-30 years.

That person is buying a condo, eating at NY restaurants, paying local state and payroll taxes, dry cleaning at local stores, buying clothes locally, etc etc etc. We know that people at that age virtually spend all their money...so what if AMZN got an x% discount on volume? What more do you want?

You don't seem to be listening at all.

Where do you think police and fire funding comes from?

It's taxes, paid by residents, and patrons to businesses... it's not like the people moving in will just take, and not pay any taxes at all.

What position do you think you're arguing against? Because it's not what the actual topic in this thread is. CydeWeys simply pointed out that the state needs to make more than $6,100 in additional revenue from each worker because they're not just paying Amazon's tax incentives (which cost $6,100)- they're also paying to provide police/fire/etc coverage for the new worker.

The argument is that there is also a burden/liability cost of bringing on an additional 25,000 citizens. They will have students that go to NYC schools, they will have disputes that need police officers, they will have emergencies that need EMTs/Firefighters, and they will have have cases that may burden the court system. They will also use the subway and they will litter and they will wear down the roads. These add burden costs to the city.

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.

I like the direction of your argument, and your overall conclusion might be true, but I think there are some significant flaws.

First, I think you are confusing the New York STATE tax rate with the New York CITY tax rate. The 6.65% you quote is the rate for the state. The city tax rate is significantly lower.

Second, you are making the classic error of applying a marginal tax rate to the entire income, rather than just the portion within the brackets. Income lower than the bracket is assessed at a lower rate, so the effective rate on the total is less.

Anyway, when I plug the $109,000 salary into a calculator here https://smartasset.com/taxes/new-york-tax-calculator and use a Brooklyn zip 11238, it shows a "Local" tax of $3560. I'm not how it affects your overall argument, but I don't think it's true that "they will easily generate more than $6,100 in revenue per year for the city from income tax alone".

Probably not as much as you think in the USA. Social services, based on my last statement from the HMRC is a huge amount of the taxes I pay dwarfing the defense budget.

Its the same at county level to.

We spend a lot on social services here in the US, we just don't always get the best value for money.

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.

> ... as those employees will have definite costs to the city ...

Yeah, because none of those employees will pay property, income, sales or other taxes locally...

But that's already factored into the calculation...

There's another problem here that isn't addressed by whether its a net plus revenue to the city. The tax break isn't applied across the board to all companies which means that Amazon is getting an unfair competitive advantage.

I don't really think of a company like Amazon needing a competitive advantage.

I can't find where I originally saw this, but as a thought exercise:

What if, instead of giving $1,500,000,000 to Amazon, NYC gave out $60,000 subsidies to some 25,000 (!!!) local small businesses?

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Now this is interesting. This would be a little like an accelerator "spray and pray" model, where economically you would only need a small percentage of those companies to become large job creators and tax payers for this to work out in the city's favor. You got my vote Jake!

What kind of new infrastructure can a small business afford with $60,000 that would enable them to become a large job creator?

I think the idea is that it would kick a handful that might have been stuck or failed over an "activation energy" hump into becoming medium-to-large businesses someday.

Like a catalyst.

I don't know if it would be better than this Amazon stuff or not, but it feels healthier.

That's more than a lot of startup accelerators give, so I think the answer is that it potentially lets a company get it's footing long enough to experience growth and self-sustain. This is a Y-Combinator affiliated website, after all...

Why do small businesses need to become "large job creators"? If in ten years those subsidies create an average of just one new job each, the return is equal to what Amazon promises.

That's not true at all.

If they make 1 new minimum wage job each, it would actually cost the city way more.

Sure, not all jobs are created equal. But there are a million variables here: when the job is created, the salary, whether it's filled by a current resident or a newcomer, how much public infrastructure the worker uses, etc.

More to the point, though, the goal of the city isn't to maximize its revenue — it's to make its citizens lives better. A minimum wage job for a poor current resident might be better the community than high-paying job for an imported knowledge worker, even if the latter means more money for the city.

And you glossed over all of those things to make a politically convenient point. And I was just pointing that out.

If you believe the latter I don't know what to tell you. Move to Detroit? The idea that less tax revenue is somehow good for funding social programs seems insane to me. Not sure how you're going to begin to justify that.

Or even better, what if NYC didnt levvy the tax at all, and gave the money back to its citizens!

Divided evenly across citizens and given lump-sum, the bulk of the money would be likely spent within the next few months, creating a spike of economic activity. People go shopping, businesses make some extra profit, maybe hire a new employee...

Maybe because using such taxes in a smart way is a smarter way of giving the money back?

What defines ‘smart’? I can think & consider & carefully plan — and still do something foolish. Moreover, what you consider wise I may consider foolish. Who am I to judge your choice, and who are you to judge mine?

It would certainly be democratic to give the money back to the citizens, permitting each to spend it as he will; then each would get a vote on what he thinks the best expenditure is.

But even if the state and city come out ahead, they could have benefited even more if cities weren't allowed to compete for these types of contracts - without these tax breaks, Amazon would still have to build a headquarters, and a similar amount of jobs and tax revenue would have been generated, without requiring any incentives. It may not have been in New York, but someone in the US is still benefiting.

Is that how you run your businesses? It doesn't matter that I didn't win this contract - it's ok though as someone else won it and they'll benefit instead?

A city isn't a business, and shouldn't be run like one. In theory they exist to serve the people, and I don't see why it is any better for people in New York to get a contract than people in any other city.

Yes a city is run to serve its citizens. If they can better serve their citizens by bringing in a major employer then that seems on-mission to me.

Can't really do that because it would be called a "cartel". But otherwise: yes, please!

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.

> restricting ruinous competitions such as these

Who or what do you think has been ruined by this competition?

Ruinous is not "the quality of having led to the ruin of a specific entity". Rather, it is defined as follows:

disastrous or destructive: a ruinous effect on the environment. • costing far more than can be afforded: the cost of their ransom might be ruinous.

I think it's pretty obvious what's being destroyed: the ability of local jurisdiction to collect tax revenue from large cooperations. Without this little beauty pageant of ugly capitalism, Amazon would still hire the same number of new employees, possibly even in the same locations. Only difference is that a billion $ could be invested in public goods, instead of going Amazon shareholders'.

The cities who bid obviously did a calculation and decided that it was net worth it... otherwise why on earth do you think they did it?

And it's not a zero-sum game. Perhaps a better proposition from a city makes a more productive Amazon? We're talking about efficient transport and things here, after all.

Your approach is let everyone make things equally as bad and let Amazon pick any of the worst. Amazon's approach is 'what can cities do to help us maximise both our success and yours?'

I think it's positive and constructive.

It's death by a thousand cuts. If Amazon really needed to expand their HQ and add 50,000 new jobs, they would do so regardless of any tax incentives. By pitting cities against one another, Amazon privatizes some of the gain that would have otherwise been public.

Repeat a few hundred times in cities around the country and huge sums are being handed over to corporations needlessly.

More taxpayers bring additional costs so it's more net revenue we're interested in. Additionally the window to compute the total net benefit is not bound to 10 years but for many decades, as long as Amazon is there. For instance over a 24 year window (how long they've been in Seattle) the required net additional tax revenue to break even would only be ~$2500 per year. And it's not just salaries that would generate this revenue, it's also property taxes and taxes on services providing for the HQ and employees. Increased rents and property prices are actually good for local government tax revenue.

> Additionally the window to compute the total net benefit is not bound to 10 years but for many decades, as long as Amazon is there. For instance over a 24 year window (how long they've been in Seattle) the required net additional tax revenue to break even would only be ~$2500 per year.

What discount rate are you using? My quick calculation is already pretty generous to Amazon, since they already get 10 years to generate the 25k jobs. Presumably, some portion of the $1.525 billion is available immediately for campus improvements etc. It's not worthwhile to project 24 years out, especially when considering the time value of money.

> And it's not just salaries that would generate this revenue, it's also property taxes and taxes on services providing for the HQ and employees.

Yes, I mentioned that increased consumption is likely taxable. The question again is whether this consumption would've happened anyway, by other companies, or by Amazon's future employees working at other companies.

> Increased rents and property prices are actually good for local government tax revenue.

Would you be in favor of widespread gentrification? It's not hard in an accounting sense to "optimize" the local tax revenue generated in New York. Just make it a city where cost of living is so high that only the wealthiest can afford to live there. In a city where affordable housing is already in very short supply, and homelessness is still a major problem, I'm not sure how "good" it is for the city to have to spend more on rent assistance.

The "effective property tax rate" in New York is ~0.8% (https://smartasset.com/taxes/new-york-property-tax-calculato...). To generate an additional $1k in property tax, the price of a property would have to increase $125k. Maybe good for the city, certainly not good for the middle-class and poor New Yorkers who have to contend with higher rents and cost of living.

EDIT: Not to mention that it's hard to see how increased rents lead to more revenue for the city. The state may be able to bring in more corporate tax income, but a more valuable property means that property owners can also claim more in depreciation etc.

> EDIT: Not to mention that it's hard to see how increased rents lead to more revenue for the city. The state may be able to bring in more corporate tax income, but a more valuable property means that property owners can also claim more in depreciation etc.

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...

Another thing to factor in, if there were no tax incentives given to open/expand offices in the DC/NYC areas, would Amazon have expanded their presence there anyway?

Considering the two areas, it seems likely they would open additional positions there regardless of whether the areas "won" the HQ2 battle, much like they're doing in Boston (and probably other places as well).

This makes tax incentives even less worthwhile.

> Factor in the various negative externalities of increased commercial and residential rents for others, potential traffic/congestion issues etc., and it seems like Amazon got a sweetheart deal.

I think it's only fair to factor in the various positive externalities. Some of those abatements you mention are for development of the spaces they are occupying, which Amazon has committed to do in the billions. Growth pains almost always exist. In places receiving large amounts of migrants (seriously, Amazon is small number compared to the influx of out-of-state employers moving to other regions) they will experience unquantifiable negatives, but we should not let this detract from the similar unquantifiable positives of economic mobility.

Don't forget that a good portion of those Amazon workers will also bring their spouses. They may even become permanent residents.

The math is more complicated than any of us understand.

A good portion of those Amazon workers will already live and work in NY, and leave their current job where they aren't being subsidised to one that is.

And how many competitors shrink as they compete on an uneven playing field (the basis of these "incentives" -- taxes and such) with these behemoths?

If you're big enough to "break the rules", arguably you're a monopoly or close enough to this to merit great suspicion and corresponding oversight.

I live in NYC, and the Total New York State & City Taxes is over $10,000 a year on a $109k base salary. See: https://arjun-menon.github.io/tax-analyzer/?income=109%2C000...

Moreover, the $109k is likely just base salary — there is probably additional stock and cash bonuses on top of that. Note that NY does not have a lower tax on capital gains or dividends (like the federal tax code), so they’ll be taxed like regular income. The $109k is also likely an outdated or incorrect number, as that’s too low a base salary for a Software Engieer in NYC — I expect the average SWE base at Amazon to be something closer to $130k.

Besides, I don’t think a business development tax break is unfair as long as it is being granted to all companies (and not just Amazon). That’s what people should be fighting for. In addition, a large chunk of the incentives are state tax credits (I assume non-refundable ones). This means the state is simply going to revive reduced additional revenue because Amazon is moving in — they don’t per de lose money (unless whatever business was going to be built in Amazon’s place would have not have gotten these tax breaks). The way this is being portrayed — it sounds like it’s a literal giveaway to Amazon, which I’m not sure it is (it would be, if it largely consisted of refundable tax credits and state capital grants).

I think the numbers and the philosophy are fascinating. Not just the Amazon deal--all these corporate invitation incentives.

Let's say Boeing decides to move their HQ from Seattle. Should a city like, say, Chicago, offer incentives to land the new HQ? What is the economic loss to Seattle? What is the economic gain to Chicago?

Why should Boeing or Amazon get off from paying taxes, but Bob's Sandwich Shop doesn't? One obvious answer: Bob's Shop doesn't really matter. But what if, say, McDonalds threatens to pull out of Chicago unless they get the same deal as Boeing? Does McDonalds matter? Do they employ enough people? Are they hard enough to replace? How about Walmart?

It intrigues me that municipal bidding has not spread to be leveraged by more corporations. I mean more blatantly leveraged. I mean like Boeing/Amazon-level blatant. Imagine if Carrier turned the tables on Trump. Publicly.

If Chevron threatened to pull all its stations from a city, would any city care? Is there enough competition to fill in the hole?

What do you call a corporation that exists in a space without enough competition to fill in the hole? Should you treat such companies differently? Should you let them not pay taxes? Should you impose monopoly regulation on them? Should you handcuff them? Or roll out the red carpet?

Should you punish any corporation that achieves this status? Or should should encourage the innovations that allow such creations?

Boeing is in Chicago since 2001. And yes, the tax incentives were awarded [1].

McDo upgraded to shiny new HQ in Chicago this year, reportedly with no tax incentives [2]

[1]: https://www.nytimes.com/2001/05/11/business/chicago-offering...

[2]: https://www.dailyherald.com/article/20160613/business/160619...

What a coincidence.

Boeing already moved HQ from Seattle to Chicago.

None of this bargaining should be legal.

https://en.wikipedia.org/wiki/Boeing

Amazon would have created those jobs either way, maybe just elsewhere.

So every dollar spent is a dollar lost for the US.

...unless the cities competing got them to create a better environment for Amazon and so made Amazon more productive, earning more money overall.

But surely tax breaks vs subsidies should be calculated differently? That is, letting Amazon skip paying $2 billion in taxes over 10 years doesn't cost the city anything directly. So from your "purely fiscal point of view", then isn't it just the cost of the marginal person on the infrastructure and housing prices, etc, vs the taxes collected?

From the article, it looks like the city may actually pay up to $500 million in a "capital grant", but I'm not sure what form the rest of the subsidies are in.

That said, the article uses wording like "Ohio taxpayers sued the state after it paid the automaker DaimlerChrysler about $280 million in tax exemptions and tax credits" so my perspective might be wrong here. It just feels misleading to use the verb "paid" on tax credits to me. Like, if I bought a Tesla, and got the $7,500 tax credit, I wouldn't feel exactly like the government paid me anything. Sure it cost the government that much, in some sense, since I would have paid the government those taxes had I not been given the break, but that doesn't really apply to the Amazon case since they wouldn't have paid those taxes anyway, since they wouldn't be in that state.

The issue isn't wether or not these incentives are net positive for the location that wins.

The problem is the prisoner's dilemma of the situation, forcing jurisdiction into a race-to-the-bottom competition.

That's because Amazon would hire these people anyway. NY and DC may come out ahead. But for the country overall, it's purely a transfer for billions from taxpayers to Amazon stockholders.

If you take that to its logical conclusions then states being able to set their own income taxes, sales taxes and their own employment laws is equally guilty.

Those low tax states are net recipients of $ from states like NY and CA - of course that would mean major changes in the constituation :-)

The logical conclusion happily isn't always at the bottom of a slippery slope.

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.

$6k per job seems like it will be break even on state income taxes for sure.

Particularly in New York, with their state income tax brackets. Not to mention any NYC income taxes added on top.

Virginia has lower rates, but they still ought to make out.

https://www.tax-brackets.org/newyorktaxtable

https://www.tax-brackets.org/virginiataxtable

Accurate. As an Amazon employee living in NYC last year I paid 14k in state taxes to NY state and almost 8k in local taxes to NYC.

Just on income tax alone that covers the $6k and that's not considering side effect impacts I have on city income in the form of paying my rent and paying local businesses which generates even more tax income.

Now of course this is all dependent on the fact that I wouldn't be generating any money for the city if it wasn't for Amazon which isn't true. I'd still have a job, it just might not pay quite as well as working for Amazon, but I'd still be contributing income tax.

Overall though from what I can tell NYC is getting a good deal and will end up with more money despite the tax breaks.

Yes I see this as a win/win/win really. If you want city life, live in NYC and if you want suburban life live in North VA. Still I see a lot of HQs in Amazon's future as well as hubs in other places. Maybe the NYC office will be the helicopter stop for Bezos between Manhattan and Long Island. :)

>>If we believed that Amazon is actually creating 25,000 NEW jobs, as well as jobs that otherwise would not exist, it seems pretty reasonable to say that the state and city come out ahead net-net.

From NYC's perspective, many of these probably will be new jobs, because many knowledge workers who wouldn't otherwise will move to NYC because of an Amazon job.

Further, $109k/yr/employee is way too low for NYC Amazon engineers; this is likely ignoring the equity grant which is taxed as ordinary income. The average will skew much higher. It seems that each new employee will very easily generate over $6100/year in state+local tax revenue.

Further there are synergies and network effects from NYC having more tech jobs and these nth-order effects will also generate tax revenue.

You can argue that this charade wasn't good for America, but it certainly was good for NYC.

Amazon received incentives from the government, but the vendors they will provide business to did not. Amazon will likely pay out billions to build their new campus - going to construction companies that will pay taxes.

This analysis is flawed.

In order to calculate a breakeven you need to determine the marginal increase in government expenditures created by a new city resident, which is obviously nonzero.

But most local government pay out goes not on high paid engineers if its anything like the UK - I know someone who was the lead councillor for social services in a large local council he had a large budget.

They don’t need police and fire and roads and subsidized subway and ferry service and building inspections and restaurant inspections and street cleaning and bike lanes?

Easy to imagine that generates $6k per job given wages and payroll taxes. Further, halo effects and construction act as multipliers on that.

I don't think construction costs are a multiplier of payroll taxes as far as the city government is concerned, and the folks at Amazon making big money would be employed regardless. Yes, some people will move into NYC for these jobs, but many of them will just move from another NYC firm to Amazon, maybe for a small raise. It's very conceivable that the folks moving within NYC will have a payroll tax increase of less than $6k.

Unless the positions they leftto go to Amazon are made redundant, those will be refilled, also. You just take salary x jobs and apply tax regulations. That's the overall tax receipt effect. There are 25k additional jobs that are likely over 6 figures in salary.

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.

> It's very conceivable that the folks moving within NYC will have a payroll tax increase of less than $6k.

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.

> Yes, some people will move into NYC for these jobs, but many of them will just move from another NYC firm to Amazon

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.

> However, I have trouble believing that the "knowledge workers" who will join Amazon would otherwise have been unemployed and underpaid.

No, but they might otherwise have been employed somewhere else, like SF. It's a zero-sum game, which is part of the reason why this whole bidding for corporate headquarters business is silly from a national perspective.

Another thing: if the cost of living increases due to the HQ's presence (which it will), then that means property taxes increase. Everyone will be paying more in property taxes, so $61000 per job is incredibly easy to meet.

> do we expect these jobs to generate $6100 a year in additional tax revenue for the state and city

The answer is probably not. Most state income taxes are pretty low and property taxes aren't much better for the city/county level kickbacks.

State income tax is 8.8% in NY. Do the math, 6.1k is met easily.

Payscale is wrong because 30-200% of those salaries are paid in stock

Also how is a smaller competitor going to be on a level playing field. For example existing NY companies paying full taxes are partially paying Amazon's subsidy.

Economic behavior has a compounding effect. Each Amazon employee who lives in a city contributes demand for local businesses that end up creating other jobs.

All these cities are simply gambling on becoming the Silicon Valley of the East. If they do take off, this $1.5 billion would be a steal.

There are already more software devs in NYC than in Silicon Valley. There's also triple the amount of people in the NYC metro area, and a lot of other industries. I'm not sure NYC needed to give a lot of money to attract them. It isn't like NYC is some former steel town or something looking to bootstrap an industry. On the contrary, NYC has added 375k people to its population in the last 10 years which is about 40% of the SF total population.

NYC also has a Gross metropolitan product 3.5x the bay area. I think Silicon Valley would like to be the NYC of the west.

It seems very unlikely that New York City needs to pump taxpayer money into proving to multinational companies that there is value to being located near the talent concentration they already have. It seems unlikely that Amazon's presence there is going to be the spark that finally ignites their struggling tech sector, or attracts job seekers from outside the region (spoiler: New York doesn't have these problems). It seems much more likely that Amazon is contributing to many of the existing NYC area problems (Read: housing/infrastructure) by further straining resources AND demanding they be paid a ransom for not building in Baltimore.

At this point, based on the cities chosen, it seems more like Amazon held these 2 obvious choice cities hostage by threatening to move to smaller, less established city instead. "Give us all your subsidies, or we'll just go build in Baltimore"

Absolutely. Right now there is SV and everwhere else. This puts NYC in clear #2. Its already the biggest second office for Google and FB. Once it gets critical mass its cements its position and will attract lots of smaller companies.

Isn't just planned amount of Salary to be paid and taxes collected from that?

How can we find out if these jobs will pay that much?

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