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Comment by altendo | Hacker News Reader

I am always struck at the amount that states and municipalities are willing to write off in order to attract companies. On one hand, I understand that companies want to take the best deal, but on the other hand, at times local governments are willing to give up so much money in tax revenue. I remember reading about the competitions for Google Fiber and Amazon's second HQ - it felt absurd the amount cities and states were willing to drop, financially speaking.

I'm glad this one has been renegotiated (especially seeing that the proposed plant never happened), but I'd like to see these deals be more level-headed before they get to this point.

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> but I'd like to see these deals be more level-headed before they get to this point.

I don't think that's possible considering the incentives at play. Politicians always have the next election in mind, and what better way to try to win it then sign a deal that promises jobs? Doesn't matter if the numbers bandied about are too good to be true --- just get pen to paper and point the finger at your opponent and decry him as anti-business.

Let's just call it what is is: corruption. Corruption isn't just something that happens in 3rd world countries. Alive and well in the US of A.

In this case, it was actually a Governor who didn't know math more so than corruption. At least for the original terms in 2017.

Do you actually believe that? Gov. Walker was notorious for various other corrupt activities as well.

In other terms, grey's law applies here: Any sufficiently advanced incompetence is indistinguishable from malice

It would be corruption if he personally benefits from the project, e.g. by selling land to Foxconn. I don't know the specific details to know if it really was a case of corruption.

A load of bitcoin in a hidden wallet? Not that visible. Easy to disguise.

The payoff could be very hard to find, but the malfeasance in public office is clear as day.

It's corporate welfare.

They’re not really “giving up” anything if they attract a business that otherwise wouldn’t be there at all.

It’s still a net gain to have a major employer in your locale, along with all the other economic benefits and tax revenue that entails.

It could be a net gain. Dropping a few thousand jobs and a factory into an area changes said area. Sometimes for the better. Sometimes not.

Most communities tend to prefer having lots of jobs available versus having too few jobs available.

Absolutely. But I don't know anyone who likes having the added traffic that thousands of jobs bring. And increased housing prices. And yada yada. More jobs isnt always positive and at the very least have some downsides.

They're giving up fairness and equality- equal treatment under the law. If the entire state wasn't completely devoid of any entities looking to compete in that space, it probably is now. Anyone making LCD panels in Wisconsin suddenly has a $80,000,000 greater financial gap from their largest competitor. If the lower taxes are good for creating jobs at a net gain to the local economy, then the lower rate should be applied equally among all similarly taxed entities.

> If the lower taxes are good for creating jobs at net gain to the local economy, then the lower rate should be applied equally among all similarly taxed entities.

I agree with the premise here, but in reality, you can see that won't actually work.

You have existing businesses in an area paying a certain amount in taxes. You want to attract a new major business. If you lower your taxes for all the businesses in hopes of attracting the new business, you just lost a huge chunk of revenue for something that might not come to fruition. Whereas if you don't lower your taxes, that new business has no incentive to go with your locale, and will instead, settle somewhere there is an already established talent-base/infrastructure/etc. Furthering the economic inequality between the regions.

I am not a fan of these tax incentives, but I can't blame these places for using them.

I believe luring in corporate giants with payouts collected from existing businesses is short-sighted and wrong both morally and economically. There are existing businesses in Wisconsin, and the way I see it, their current collective tax burden is excessive to the tune of at least $80,000,000.

The government is essentially running around to all of the Davids, collecting a few dollars from each to fund the construction of a tower that puts the Goliath beyond the reach of David's sling. I don't want a government that builds mountains for the largest companies while relegating small businesses to the trenches. I want a government that does everything possible to keep the battlefield level. Innovation rarely comes from the established giants.

There's an old phrase "burning down your house for the nails" - so yes, we can blame these places for using them.

There should be research to support this argument. Has anyone found evidence for or against? Otherwise the claim here seems aspirational rather than useful.

I know that the history of stadium deals, for example, this claim is nearly universally made to support incentivizing sports teams - and the evidence nearly universally shows it to be false.

"In every case, the conclusions are the same. A new sports facility has an extremely small (perhaps even negative) effect on overall economic activity and employment. No recent facility appears to have earned anything approaching a reasonable return on investment. No recent facility has been self-financing in terms of its impact on net tax revenues. Regardless of whether the unit of analysis is a local neighborhood, a city, or an entire metropolitan area, the economic benefits of sports facilities are de minimus." [0]

[0] https://www.brookings.edu/articles/sports-jobs-taxes-are-new...

I don't think the comparison to sports stadiums fit here. Usually there is already a stadium for a large NFL team or whatever in the city and the economies in the cities that are large enough to even host these teams are WAY more dynamic than where many factories are being built in the south or midwest.

For example Walmart's HQ was built in a TINY SW Arkansas town. The billions that have been invested there by the company, not only in jobs, but amenities in the city have no comparison to any other option that was available to them. If the city and state wanted to hand Walmart a $100 million dollar check, then that investment would have paid off way more than 10x. (IDK what subsidies they were given, probably none just using this for sake of the argument)

I know WM is the evil empire and I'm not defending all they do, just saying that if the right business moves into your small community it can be worth tens, hundreds or even many billions of dollars to a community that has no other options.

Amazon moving into NYC, or Atlanta giving many millions in subsidies to the Braves for a new stadium? Not really comparable.

I'd just like Wal-Mart to honor Walton's rule about no more than two customers waiting in line.

> For example Walmart's HQ was built in a TINY SW Arkansas town.

Minor correction: Walmart's HQ is in NW Arkansas (Bentonville)

The "Tiny town" is 70,000 people who live in an multi-city metro area of around 600,000. That may not be like SF or NYC big, but it's also not just a random metro area. Having lived there for a few years, you're painting with a poetic brush a bit and I'd like to clarify how I see it.

Walmart owns Bentonville. The city council, mayor, and basically anyone there is almost completely subservient to their interests. Again - WM never moved in to the small community, the small community literally is Wal-mart.

For many years, people in the town worked in Wal-mart retail buildings & warehouses around Bentonville. Around 2013 the company started to struggle to compete and found that they needed to attract talent, so the Walton Family Foundation started spending somewhere around $300 million - $400 million a year in improvements and restoration projects. This included massive subsidies for companies that moved in to the area - WFF also paid partially or fully relocation money, but I have no idea how much they paid other than one restaurant owner I spoke to who was basically given moving costs, a building, and "free" rent for a year.

The whole "Wal-mart HQ" thing is just another in their line of tactics to attract new talent in to the area because they are struggling to build an ecosystem of talented developers and analysts. Which, again, there's nothing wrong with this tactic if that's what you're hunting for.

One thing I'll give WM for sure - they are 100% focused on building out a tech bubble for people who want a semi-urban lifestyle. There's a lot of TX & CA transplants and honestly it's working great for them.

All told, none of this is even kind of comparable to Amazon moving to NYC or Atlanta. Nor is it comparable to a company moving in to a small town brand-new.

[ed: oops missed an important sentence!]

According to wikipedia the population of Bentonville when the first WM store was built was 2,949.

It's now 54,909, but maybe it's 70k as you say.

Either way it sounds precisely like a situation where a giant corporation moved in to a small town. Or more accurately the tiny store grew into a giant corporation and so did the small town.

My point was merely that many small rural town mayors would love it if a giant corporation would move an HQ with tens of thousands of high paying jobs into their tiny communities! This is why the are willing to give giant incentives to them.

You make great points otherwise, thanks for sharing your perspective!

I didn’t say the comparison was necessarily valid or invalid. I said that evidence for and against you things can exist and should be brought when claims are made.

The only comparison I am making is that virtually identical claims are made about stadium deals and the evidence suggest the opposite of those claims is true.

I would just like these claims to be evaluated and assessed using evidence not accept it is true because they fit within the narrative that is presented every single time a company wants a tax break

> For example Walmart's HQ was built in a TINY SW Arkansas town.

I understand what you're saying here, but Walmart is a really bad example here. They started in Bentonville in the 50's as a tiny shop and the city grew with their growth - their decision to stay in "a little town in Arkansas" was organic.

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

The New York Times investigated this notion and found most deals were so lopsided that the municipalities and states never came anywhere near recouping their investments. https://www.nytimes.com/2012/12/02/us/how-local-taxpayers-ba...

Exactly.

People this it’s a choice between: A) company moves here pays $0 in tax or B) company moves here and pays $5M in tax.

When in reality it’s a choice between: A) company comes here and pays $0 in tax or B) company doesn’t come here and net taxes are still $0

We have a coordinating union of states though, we don't need states to be pitted against each other to subsidize existing wealthy owners.

That seems like a ridiculous idea. The very purpose of the states is “50 different experiments”. I want states pitted against each other.

That's a later conception of Brandeis isn't it? Think of the early political cartoon of a snake cut into 13 pieces that needed to join to defeat the British, not experiment in competition against each other to win the war by subsidizing the largest existing concentrated owners to entice them to their state with corporate welfare.

Or, company comes here, pays their employees less than expected, and leaves sooner than expected with the local taxpayers on the hook paying for more infrastructure than they need - and maybe some bonus pollution to deal with for decades.

These deals are always more complicated than the initial marquee numbers and that usually seems to make them less favorable for the area than hoped because companies have greater experience and can play desperate municipalities off against each other with little consequence for not delivering.

According to [1], its:

A) company comes here and pays $0 in tax. and city "took on hundreds of millions in debt that was supposed to be repaid by property taxes".

B) company doesn’t come here and net taxes are still $0. city doesnt take on more debt.

B looks better.

[1] https://www.theverge.com/21507966/foxconn-empty-factories-wi...

No offense but if a city can’t negotiate a decent agreement they kind of deserve to get screwed on it.

Roads and infrastructure don't pay for themselves and considering the scale of some incentive packages offered and the paltry outcomes like the one we're discussing in Wisconsin and elsewhere the assertion that there's a "net gain" deserves serious scrutiny and supporting evidence.

I don't understand why people keep downvoting this sentiment. Cities have two options:

(1) Attract a business that wouldn't otherwise come, which when it exists will attract more people that pay state/local sales taxes and increase demand for property, which in turn increases property price, which increases property taxes.

(2) Don't attract the business. . . .. nothing comes after that.

And once again the law of the excluded middle strikes. No, the only two options are not the ones you suggest. The other option, that you conveniently ignore, is that cities build a good infrastructure that attracts talent and the businesses come to either serve the talent or employ the talent -- no subsidy needed.

By now there must be entire libraries, or at least large warehouses, filled with case studies from HBS and similar schools that show state and municipal tax incentives are ALWAYS a bad deal for the city and state finances. The only purpose they serve is to make a politician appear effective and to enable that politician and his or her cronies to collect a bit of graft.

> The other option, that you conveniently ignore, is that cities build a good infrastructure that attracts talent and the businesses come to either serve the talent or employ the talent -- no subsidy needed.

How do cities pay for that good infrastructure? either with tax revenue or debt (bond). Very often cities want to attract businesses precisely because their commercial base is in decline, with very little room to hike tax. As for debt, such a city may have low credit score making it hard to get loans, or being saddled with high interest rate.

Giving incentive to businesses allows them to stabilize long term revenue, at the same time adding local jobs. That's the theory. The reality of course include both good and bad examples of such scheme. Foxconn is a bad example.

They usually don't gain many jobs, and the tax benefits are usually given away as part of the package to attract the business.

They don't have a choice between Amazon HQ or 50 medium sized new businesses, they often have Amazon HQ or nothing new. In that case, whatever they get is more than they have now, isn't it? New jobs that will bring other new businesses and local taxes etc are a bonus.

Places that were serious contenders for Amazon HQ definitely have other employers and options. There is no way that Amazon HQ is ending up in Sioux Falls or Laramie or something.

It looks that way in the end, with no other alternative but to yield, but at some point there were many options, that is how the town, city, county or state came to be in the first place. The problem is that they gave so many concessions just to get a short term political advantage, that real productive and sustainable jobs couldn't compete with corruption.

Now because of the giant snowball made from all the little policy mistakes that sounded insignificant at first, or ever worse, sounded sound! I mean who wouldn't want high paying jobs that barely require any training? the only option in many places is to keep the charade, but at some point politics need to give way to real production, and that only means real competition.

Close the deal, claim credit, move on before the inevitable consequences.

Just like a sales driven tech company. Heroes for booking sales. Score fat commission. Loser developers and clients are left holding the bag.

I think it’s a zero-sum game. Only one of your competitors has to offer a concession to win the business so you have to compete.

you cant "give up" tax revenue you haven't collected

You're right, but you can contribute to a race-to-the-bottom where no one collects any tax.

You get taxes in other ways through new building permits, higher property taxes, local sales tax, etc...there is more going on than just collecting corporate taxes in a municipality. The more people you draw the better your overall tax revenue is...and the taxes you are willing to put off are limited in time and generally expire after 5-10 years.

This is all true but it just describes why jurisdictions are willing to join the race to the bottom.

But “the bottom” is not really a bottom then. It is like a joint private/public venture. What is wrong with that?

It's not really a problem for the partners in the joint private/public venture. It is a problem for the next jurisdiction that is now facing companies' expectations of massive incentives, for the existing residents and businesses that are paying normal taxes because they aren't new, for any but the largest businesses who don't have lobbyists on staff, etc.

There's also the general wisdom that life is better when you're competing to offer more value for more money, not just cutting costs as far as you can

I see your point and agree that from the fairness point of view this is not quite right. However, I do not see fairness as relevant in this context. Unless it is Walmart that is getting tax breaks for building a bunch of stores in NYC, local businesses do not oppose big companies getting incentives to move in.

Perhaps they don't but I'm not as focused on the relationship between the company and jurisdiction, I'm talking about the externalities.

Desperate places give away the store to get anything at all, and it depresses what companies are willing to offer the next place while also tilting the playing field toward big companies with the ability to negotiate these kind of deals.

You certainly can if it's property taxes. Someone's going to own the land either way, so offering property tax incentives is giving up tax revenue.

> local governments are willing to give up so much money in tax revenue

It's literally a race to the bottom, and for some reason people are eager to win!

it's a pretty low risk gamble for the politicians and there's almost always a reward for them even if the deal falls through.

In this case because Scott Walker lost re-election.

> On July 16, 2019, President Trump announced his intent to appoint Walker to be a Member (Private Life) of the Board of Trustees of the Woodrow Wilson International Center for Scholars in the Smithsonian Institution

he was rewarded with a sinecure.

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