OPINION: Amazon’s HQ2 A Reminder Corporate Welfare Is Alive And Well

Andrew Wilford | National Taxpayers' Union Foundation

Amazon’s decision to place a new dual-headquarters — HQ2 — in New York City and Washington, D.C., was predictable. Maybe the decision to split the new headquarters was a twist, but one that Amazon executives likely had in the works from nearly the beginning. That the “lucky winners” would have promised to fork over the big bucks to Amazon for the privilege of its presence is likewise no surprise. But most of all, Amazon’s HQ2 decision served as yet another reminder that if comprehensive change is to come to the status quo of wasteful tax incentives, it may need to be a national effort.

Similarly not shocking: the subsidies were a nice bonus to Amazon, but not the deciding factor. Amazon will reportedly receive more than $2 billion in subsidies from New York and Virginia, but Newark, New Jersey had offered $7 billion. Incentives were always a sideshow to Amazon; it was also interested in the labor market it could tap into, as well as other logistical considerations.

Amazon is just the best-publicized example of states and localities offering targeted tax incentives, which promise tax breaks or cash grants to specific companies in return for “creating jobs.” Even before the Amazon HQ2 deals, The Brookings Institution estimated that states and localities forgo as much as $90 billion per year in tax revenue through targeted economic incentives.

The problem is the idea of practice “creating jobs” is a myth. Even when jobs are added due to the issuance of a targeted tax break, many businesses follow the Amazon model where they move somewhere they intended to move anyway, and subsequently collect tax breaks as a bonus.

In fact, as many as 90 percent of funds put towards targeted tax breaks do not actually affect business behavior. Cities and states around the country are spending tens and billions of dollars a year to shift jobs around the country.

Even more concerning is the effect on local communities. Despite the focus on the strain Amazon’s move may place on housing markets in Arlington and New York City, the greater concern with targeted tax breaks is generally the effect on competitors. Targeted tax breaks cause ripple effects throughout the economy as local businesses are forced to compete with a new entity that has been propped up by “economic incentive” subsidies.

Targeted incentive programs tout new jobs created, but others are lost as competitors are forced into layoffs and price increases as they are unable to contend with a subsidized competitor. While Amazon’s HQ2 will not compete with local businesses in the traditional retail sense, it will nonetheless snap up local talent in the job market.

Who’s to blame for this waste? It’s hard to blame businesses — their primary responsibility is to shareholders, and turning down free money that competitors are gladly taking would be irresponsible in this regard. Even state and local governments aware of the wastefulness of the targeted incentive system likely fear being placed at a disadvantage against subsidy-happy cities should they end their own incentive system.

A national solution may be required to finally solve this vexing problem. For example, states could band together to enter into a compact prohibiting development subsidies. Because this is a classic collective action problem, a compact could allow states certainty that their no-subsidy stance wouldn’t be undermined by a rogue state handing out lavish supports. As our national legislative body, Congress could encourage and eventually approve such a compact.

This cooperative approach might be preferable to more blunt instruments that have been suggested, such as the 100-percent federal tax on state and local targeted tax incentives former Delaware Gov. Jack Markell proposed a year ago.

Conservatives and liberals don’t agree on much, but opposition to wasteful corporate subsidies unites most people in both camps. Finally putting an end, once and for all, to taxpayer-funded giveaways could leverage rare agreement into a big win for Americans of all ideological persuasions.

Andrew Wilford is a policy analyst with the National Taxpayers Union Foundation, a nonprofit dedicated to tax policy analysis and education at all levels of government.

 The views and opinions expressed in this commentary are those of the author and do not reflect the official position of The Daily Caller.

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