Subsidies to Amazon Are Uneconomical, Un-American, and Unconstitutional | Hacker News Reader

Subsidies to Amazon Are Uneconomical, Un-American, and Unconstitutional

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98 pointschmaynard58 comments

> Amazon is not going to be more productive in New York than in New Jersey

That's a humongous assumption and one that I think simply isn't true. Not specifically that New Jersey is a worse place to run a business, but in general he seems to be assuming that geography is complete non-issue. That's just obviously not true. There's a zillion businesses that have set roots in NYC or other industry hot spots and most of them received no specific incentives. I mean, why did they even conduct this search if everyplace is the same? They could have put their HQ2 in the Nevada desert and saved way more than their tax breaks were worth.

Yea I found this a very weird thing to say, as engineering talent was a huge reason for choosing New York, and is a resource that New jersey does not have in anywhere near the same abundance.

I am curious where they would've chosen had subsidies actually been illegal, as this author says we should do. My guess is that they would've ended up in, you guessed it, New York and Virginia, regardless.

I find that very hard to believe given the close proximity of NJ to NY. In particular, Newark is literally just across the river from New York City.

On top of that, how many people working in NYC actually commute in from NJ? Meaning... they're actually living in NJ in the first place.

You actually are wrong about this. No one here want to work in NJ. Few young people in the city keep cars. People would scratch their heads if you told them you were working out there. Might be just a psychological thing. but it's real. I wouldn't look for jobs in NJ unless they dropped into my lap.

i was responding to this idea to amazon located in NYC because that's where the engineers/workers are at. If there's actually more in NJ, locating there would have meant those jobs would have just dropped in your lap. But I don't have specific numbers on commuters from NJ, and suspect their decision was based on more than just staff availability.

Where do you live and work? I live and work in Seattle, and although I wouldn't rule it out, I would prefer not to cross Lake Washington to work in Bellevue even though it's technically closer to me than certain parts of Seattle that I regularly visit. Boundaries and regional identities have sometimes irrational emotional impacts.

Also, NJ is very close to NY by the standards of everywhere in America other than NY. Density and urbanization affect our perceptions of distance: a famous representation of this is "View of the World from 9th Avenue" (https://en.wikipedia.org/wiki/View_of_the_World_from_9th_Ave...)

Are you an nyc local?

There absolutely is a premium placed for companies based in nyc. Companies in Newark, Hoboken, etc all start at a major disadvantage competing for talent.

As an example, WalMart has put together a new lab that is meant to compete with Amazon. A talent agent called me up and said, "Hey, the team at WalMart is paying well, base salary of $210,000, cutting edge technology, are you interested?" I asked where is it? They said New Jersey. I was like, no way. I'm not leaving New York and going out there. The commute is terrible.

Commute to Jersey City or Hoboken is really fast. PATH is faster and more reliable than the subway.

If everything works perfectly, sure. Then there are the constant days like yesterday where you might as well walk

I'm not sure if you're trying to be sarcastic, but Jet is based in Hoboken, and, from first-hand knowledge, they do pay above market for software engineers in order to compete with companies based in nyc.

No sarcasm. When I've had to work projects in New Jersey its been an ordeal. If I can make $180,000 in New York versus $210,000 in New Jersey, then I'm going to stick with New York. I put a high value on being able to walk home after work. My clients are typically between 14th street and 59th street. I live on 98th street. I often walk home after work. Sometimes the walk is the only exercise I get. I would not want to give it up.

> geography is complete non-issue

Newark is 0.5-1 hr away from Manhattan (both public transport and driving)

Given that NJ was apparently offering more tax breaks and that housing is generally cheaper. I can see why NJ would have been a good option.

Someone could easily stay in Jersey City/Hoboken, have a 30 minutes (in traffic) commute and get the NYC feel. Or, they could stay in Newark and rent a mansion at NYC rents.

Amazon would still have access to talent going to Columbia, Cornell-tech and get extra access to Rutgers as well.

IMO, best of both worlds.

Audible, an Amazon subsidiary, is based in Newark. I'm guessing Bezos knows exactly how easy or hard it is to recruit there.

Maybe it’s because I don’t live in NYC, but there’s to be very little difference geographical benefit of crossing the East River, compared to crossing the Hudson.

As far as conducting the search, I thought that was obvious. By holding a bogus competition, they managed to extract tax breaks from the places they were going to settle in anyway, through the bogus threat of settling someplace else. Come on, did anyone really think Columbus, Ohio[0] was in the running?

The reason why Amazon didn’t put HQ2 in Las Vegas, is because the access to talent is not there, and Las Vegas has no comparative advantage like NYC (finance) and DC metro (legal). It’s sinply not worth it to either entice people from places that are perceived to be better (for whatever definition they choose), or to invest in training up the local population to take the jobs that are needed today.

[0] https://www.forbes.com/sites/bisnow/2018/01/19/amazon-hq2-sh...

This is not only untrue, this is almost ridiculous enough to beggar belief.

If geography has no impact on how productive a business is, why would any business operate in New York and San Francisco? They are incredibly expensive. If there's literally no difference in value, then businesses should choose based on cost, and you should never see hubs like San Francisco or New York where businesses tend to cluster together. You can only handwave about market irrationality and/or conspiracy theories so much, and even then, why would our wicked corporate overlords do something devious that pointlessly increased their expenses when all the other devious things they seem to do are in the service of ruthlessly decreasing their expenses?

B&M retail did end up not being centered in NY anymore for cost reasons (Target is headquartered in Minneapolis and Wal-Mart is headquartered in Bentonville, Arkansas). So obviously it's a concern; it's just that managing the marginal cost of your headquarters real estate and headcount is a bigger deal for Wal-Mart than it is for Amazon, while recruiting the kind of talent that tends to cluster in NY and Seattle is a bigger deal for Amazon than it is for Wal-Mart.

My understanding is that these tax breaks were never intended to be subsidies, but rather mechanisms to entice Amazon to set up shop in said area. Say you're a landlord, and you can't find a tenant for a unit. In response, you offer lower the rent. Is that a subsidy? Say you're at a car dealership, and you can't find a buyer for a given type of car. So you offer something like preferable financing, or extended warranty. Is that subsidizing the car buyer? I'd say no, they're offering incentives, not subsidies.

Sure, this may sound like spitting hairs but I do think calling the tax deals given to Amazon a subsidy is deceptive. In my mind, a subsidy is giving to support someone or something in need, that usually wouldn't be profitable otherwise. Like green energy, electric vehicles, or growing certain types of crops. The delals given to Amazon were tax incentives. Something Amazon doesn't need, but the city offers in order to entice Amazon into setting up shop there.

Comparing a landlord, which only represents the owners' interests, to the state, which represents all taxpayers', doesn't make sense.

In a sense, the state is the landlord of all the residents of the state. The state provides services to the people, and in return the people pay rent (taxes) to the state.

This is not directly related to the point I'm making though: the point of these tax deals is not to help Amazon's business (though that is likely a side effect). The point of these deals were to entice Amazon to set up shop in that location. Thus, it is better to call these deals incentives rather than subsidies.

> Thus, it is better to call these deals incentives rather than subsidies.

Note the added emphases:

"A subsidy or government incentive is a form of financial aid or support extended to an economic sector (or institution, business, or individual) generally with the aim of promoting economic and social policy." [0]

"a grant by a government to a private person or company to assist an enterprise deemed advantageous to the public" [1]

"A subsidy is a benefit given to an individual, business or institution, usually by the government. It is usually in the form of a cash payment or a tax reduction." [2]

I don't think there's nearly as bright a line between "subsidy" and "incentive" as you're trying to paint here.

[0] https://en.wikipedia.org/wiki/Subsidy

[1] https://www.merriam-webster.com/dictionary/subsidy

[2] https://www.investopedia.com/terms/s/subsidy.asp

This isn't financial aid since Amazon isn't short on cash. It also isn't promoting any economic or social policy (unless people see e-commerce and cloud computing as a social policy, which seems far fetched). So it at least fails the first definition.

Perhaps a better way to put my underlying idea into words is that these cities are still acting in their own self interest. Much like a dealer offering a few grand off sticker price, these cities are making a concession to Amazon but are still acting in their own self interest because they would be making even less money if Amazon decided to set up shop somewhere else. "Subsidy" often as the connotation of being something charitable to advance some social policy. These cities aren't being charitable to Amazon. They're acting in their own self interest by making themselves economically competitive. Much like the dealer accepting a lower price, they're accepting a lesser payment but the alternative is not making a sale at all. Sure, an argument could be made that Amazon would have chosen NY or DC with a smaller incentive - but that's more of a hypothetical criticism of the government's negotiations rather than the act of offering incentives in and of itself.

This is distinct from something like offering a subsidy to buy electric cars. This is a scenario where the government is making a sacrifice in order to promote an environmental benefit.

You seem to be asserting the unsubstantiated, and until now implicit premise that "subsidies" are necessarily somehow "charitable."

I don't find that to be at all supported, whether in the literature, in the behavior, or in your argument.

EDIT: That is to say, a "subsidy" can absolutely be used to serve the subsidizing party's interests, as you describe, alongside, or even over the subsidized party's. Charity is an orthogonal question.

Two of your 3 definitions specified that subsidies are characterized by having the aim of promoting some sort of "social policy" or something "advantageous to the public". In my view, this means subsidies are "charitable" insofar as they are making a monetary sacrifice to promotr some sort of greater good, be it environmental (like green energy subsidies) or social justice (like grants to minority or women owned businesses) or something else.

I don't think any of the public officials framed these tax incentives to Amazon of having any sort of "social policy" or anything of that sort. They seemed to have been offered with the explicit goal of optimizing revenue in the long term, not trying to advance any sort of social good beyond bringing in more money.

You don't see any growth in the local economy that would result from HQ2-A (or is this one -B?) as an "economic [or social] policy" worth supporting, for its own sake, or that it's not somehow "advantageous to the public", under the kind of thinking that uses tax breaks to lure corporations like this?

The "greater good" under discussion is, IMO, the "rising tides lift all boats" notion that (at least some of) the people behind this policy believe will result from it.

That's not charity; it's "optimizing revenue in the long term". It's purely about "bringing in more money".

EDIT: Not to say I subscribe to this theory, personally, but that's my understanding of the motivations in play.

Now, if you'll excuse me, I have far more productive things to do with my time than to keep going in circles here.

No, the presence of HQ2 in and of itself is not a social policy, and yields no public benefit. It serves the interest of the government, by increasing revenue. Presumably they will spend that money on something that does have social benefits, but that's not directly tied to Amazon's tax incentives.

Sure, it is if we adopt a definition of "subsidy" that includes tax incentives that are offered with the goal of increasing tax revenue in the long run, but such a re-framing eliminates the root of a lot of outrage about these "subsidies". It's no longer correct to say that New York and Virginia are giving anything to Amazon, because these governments are still receiving more taxes than they would have without Amazon's presence. The article linked by OP doesn't actually dispute that. The only piece of quantitative data it provides is a correlation between campaign contributions and subsidies. The article claims that the tax incentives (or if you prefer, subsidies) are uneconomical, but it does not actually put forth any data to demonstrate that NY or VA will see a net loss in the Amazon HQ2 deals.

All those taxes not paid by Amazon will have to be paid by someone else, because the services, from roads to hospitals, will surely be used.

As per the argument

> the Amazon employees will increase tax revenue

Will they? When every and each of their meals is subsidized? Where their transportation, their gym membership, even their kids' school is paid for? And Amazon pays almost nothing in taxes itself [0]

So, yeah, it's a subsidy, maybe not in cash, but in free city services.

[0] https://itep.org/amazon-inc-paid-zero-in-federal-taxes-in-20...

Softeware development isn't exactly heavy industry. It's not known for incurring significant burden on government services. Not to mention, the demographics that disproportionately make up tech companies (younger wealthier people, with higher rates of childlessness) tend to contribute a lot more in taxes than they consume. Remember, even if Amazon itself is paying less corporate taxes, their employees are still paying state and local taxes.

Your metaphor is wrong. Say you're a car dealer. Hundreds of poor people show up who need a car just to get by. You offer them nothing but the sticker price. Sorry, we gotta make money too. A rich guy shows up, who could probably purchase the dealership, and you offer him 90% off the sticker price of whatever cars he wants. You won't make any money off of him, but maybe he'll tell his friends and they will come to you for a car.

Were there any businesses looking into setting up shop in NYC or Crystal City that were poised to bring anywhere near the amount of wealth as Amazon?

I think a more accurate metaphor is that you're a car dealer, and you're regularly selling Kias and Toyotas at sticker price, but you're having trouble selling a Mercedes S Class. A wealthy person - who can clearly afford sticker price - offers 90% of the sticker price and points out that all the dealerships in the area want to sell these cars and plenty are willing to knock double digits off MSRP. Is it wrong to sell the car at a discount?

That metaphor doesn't work because we're both the one selling the car and the hundreds of poor people. The rich guy shows up and he demands that all the poor people chip in to buy him a new car or he won't even buy a car to begin with, he'll go to the next dealership and demand the poor people chip in there. Everyone would be better off if the poor people of every call dealership got together and agreed that rich people should pay the same price as poor people, not less.

> but I do think calling the tax deals given to Amazon a subsidy is deceptive

I haven't read up on Amazon HQ2, but the FoxConn deal in Wisconsin contains actual subsidies. The company promised to invest in factories and the state/municipalities both cut taxes and threw direct subsidies at the project (I think most of it is in utilities like electrical/freeway expansions).

I assume that HQ2 would need some similar improvements if they are to bring in 25k+ new jobs, so I'm assuming there is a reduced-tax component and a "we will build out the city/utility infrastructure" component as well.

The Government should not pick winners and losers. It is unfair for one company to get these great incentives. Also, the taxpayer ends up subsidizing all their monetary benefits for choosing the city. I am glad that both sides agree that this is wrong.

> the taxpayer ends up subsidizing all their monetary benefits

The taxpayer in NY ends up better off after this deal; even critical articles like the OP acknowledge that the subsidies are dwarfed by the increase in tax revenues that the state will gain.

To recap, Amazon is getting ~$1.5b in performance-pegged tax breaks over 10 years. The OP gives an estimate of $14b over 25 years in tax revenue added; that gives $5.6b over the same 10 year period, or over $4b net gain to NY taxpayers.

Note, if the office turns out to be less successful at generating tax revenue than projected, then the tax breaks scale down.

There are legitimate arguments against this kind of deal, such as that it encourages a race to the bottom where desperate cities offer close to zero net taxes. But we're pretty clearly quite far away from that equilibrium; cities still have bargaining power in these negotiations.

>The taxpayer in NY ends up better off after this deal;

you added a qualifier that OP did not add. Yes, the new york taxpayer is better off, but this is rent-seeking behavior

New York is better off by subsidizing Amazon in the same sense as Luxembourg is better off compared to other European countries by being a tax haven. Hardly something applaudable.

NY taxpayers are collectively paying for something of benefit to them with their tax dollars. It's something which can only be paid for by aggregating many people's money together, and creates a spillover benefit for the people paying for it.

That's literally what taxes are for.

No, this is not comparable to a simple tax collection. In the usual case, people leverage a tax on people or property within their own jurisdictions to fund programs. That is to say, they themselves pay for their services.

What is happening here is that New York creates an incentive that is supposed to motivate Amazon to move economic activity out of some other location in the US to New York, at the disadvantage of everyone else, who now can either enter into this competition and erode their own tax base, or take the loss.

If you could simply increase your tax revenue by giving tax money away to companies, you would have invented a magical tax money printing machine.

> If you could simply increase your tax revenue by giving tax money away to companies

I find it the height of irony that, on a site created by a startup accelerator, you're saying that you can't help a business by giving it cash

by funding a startup you are adding competition to the market. Funding startups is not a zero sum game. In fact fostering a local entrepreneurship community that can compete with amazon on the market would be to the benefit of workers, the economy, and citizens. Transplanting existing Amazon jobs from one place to the other, is a zero sum game.

related article precisely on this issue:

https://hbr.org/2018/07/landing-amazon-hq2-isnt-the-right-wa...

You think that Amazon has 25,000 jobs that are going to be transplanted to NY? Come on.

I argue that no, taxes are not 'for' subsidising private companies.

>The taxpayer in NY ends up better off after this deal; even critical articles like the OP acknowledge that the subsidies are dwarfed by the increase in tax revenues that the state will gain.

Maybe. But what if all the other cities/States collude - or independently - for the benefit of their taxpayers, decide to give Amazon a “personalized tax deal” like NY/NYC gave Amazon...only to Amazon’s detriment?

If other states/cities are going to take the good employers with custom tax deals I think everyone else should make sure those subsidized companies aren’t also eating up their local economies/businesses.

Boosterism is more popular with taxpayers (a category which more or less all voters fall into) than your comment lets on.

> I am glad that both sides agree that this is wrong.

Saying so don't make it so? Of course there are large camps on both sides that dislike this kind of deal, but I don't think boosterism is universally unpopular with voters. This wasn't a shady, "backroom" deal. Governor Cuomo and Northam have both been extremely open about their support for luring Amazon with benefits.

> I am not a lawyer. As an economist, however, I can state with certainty that there is no difference between discriminating through taxes and discriminating through subsidies. I can also say that preferential trade areas and preferential treatment for some companies are equally destructive of free commerce. Hence, it is not unreasonable to argue that these types of corporate subsidies are even unconstitutional.

The dormant commerce clause prevents states from discriminating against in-state businesses versus out-of-state businesses, not between in-state businesses. It's not a dormant commerce clause violation for a state to charge different local taxes to different local businesses. It's only a violation if the state imposes different taxes on otherwise similarly situated businesses on the basis of state residency. E.g. if New York gave people a sales tax discount if they purchase from an online retailer with an in-state presence.

And inner state commerce isn't supposed to apply to in state trade, except its the entire basis for regulating drug laws. You know how we had a constitutional amendment to ban alcohol, yet cannabis was by federal fiat.

It's so cute how someone believes they have an intellectual answer to what is simply naked abuse of power.

The Constitution has been regularly ignored or greatly abused for about a century now. Get over it.

Well one such example of different tax treatment would be professional such as lawyers. At least in my state lawyers are exempt from charging/collecting State sales tax for our services.

But there is a major difference in the legislature passing a law exempting certain types of businesses from charging/collecting sales tax vs opaque, back room dealing to carve out special taxes for a single company.

It was just recent a post made it to the front page regarding the proposed BEZOS Act for large companies to reimburse the Federal Government for federal welfare subsidies low wage workers receive. Even though the proposed Act didn’t actually single out Amazon, they were used as an example as well as Walmart of companies that would fit into this legal framework. Still many here in HN screamed Bill of Attainder. I disagree (and personally like the spirit legislation).

I do think this is distinguishable, because obviously this is a personalized tax deal made for one company. Of course if this is constitutional for cities/states to just create individual tax deals, maybe all those other cities who got played by Amazon should take a que and go ahead and create a personalized tax deal for Amazon and tax the ever living shit out of Amazon so they effectively can do business in their jurisdiction.

Wow and this is from the quite conservative very free market University of Chicago (Milton Friedman’s group).

Amazon is like an army undergoing the pincer movement and getting closed in from both sides...

Dominate the market, conservatives like it, liberals decry it. Take subsidies because you want to get some free money, you get the reverse edit: liberals also hate subsidy corruption (good note).

Liberals are also against baldly corrupt subsidies, of course.

Are they? The 2009 recession was full of corporate cheese and it seemed like a pretty solid front defending it.

Were they defending corporate cheese or just against the idea of letting the economy nosedive and hope for the best?

Can you provide an example?

This might be the first time I have heard a critique from that angle.

Many of my capital-skeptic friends were against the bank and insurance bailouts without meaningful consequences.

They are still pretty irked TBH.

I think of these people as 'liberal' in the 'leftist' sense of the word. Maybe you mean 'neo-liberal', as in the economic sense?

Or maybe you just have a different demographic group in mind that I am unaware of.

Regardless, I would like to learn more.

In particular I GM in mind. A clear cut case of corporate welfare going to a badly ran corporation, but which had strong political connections.

I would have described the ~2008-9 bailouts exactly the opposite of that.

Lots of people were very critical of them, and they weren't gifts, they were the government investing in those companies (buying stock) so they didn't go under. As a whole, those investments ended up being fairly profitable for the government.

> If companies are successful in pitting one state against another, they will end up paying no state taxes. As a result, the economy will not be one iota more efficient

This was preceded by a claim that Amazon would employ 25000+ people at the new HQs. Those people will pay taxes, and having 25k extra jobs in your state is, economically speaking, better than not having them.

I've never been a fan of granting special treatment to specific businesses. It's completely unfair to local competitors who have been quietly paying their taxes; You can boast about the economic gains, but don't forget about the harm inflicted on the rest of the sector.

I marvel at the power of NYC.

We in Wisconsin have been shouting this from the highest rooftop since the day Walker inflicted the Foxconn "deal" upon us. But there was not a single word from places like U Chicago. I mean, Walker is part of the GOP, so if conservatives had spoken up it might have helped. Who knows?

Now, the way it stands, we're obliged to pay more than three times as much money as NYC, for less than HALF the number of jobs. And, again, if all that weren't bad enough, the jobs at Foxconn will likely pay much less than the jobs at Amazon.

How do you get marketing like the people in NYC have? Because man, we got HOSED on that deal. I'd, at least, like a law that would restrict governors or mayors or whatnot from making deals like that without putting them to a popular vote.

> How do you get marketing like the people in NYC have?

Be the city with the HQ of most/all large US marketing firms.

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