Following a nationwide bidding war by city and state governments for Amazon’s “HQ2,” the online retailing giant accepted offers of more than $2 billion in economic incentives to locate two facilities in Arlington, Virginia’s Crystal City and New York City’s Long Island City.
Some 238 American cities entered the competition, according to the Mercatus Center. Though many bids were secret, the average offer of publicly-available bids from the 20 semi-finalists was $2.15 billion from cities and $6.75 billion from states over the next 15 years, according to the Mercatus Center.
Incentives offered by the winning cities and states were not as high as the average bid.
The state of Virginia will give Amazon $573 million in tax breaks if the company reaches its hiring target, and the city of Arlington will give Amazon a cash grant of $23 million over 15 years.
New York City and the state will give Amazon $1.2 billion in tax credits and a cash grant of $325 million over 10 years if the company reaches its hiring and building targets—amounting to more than $60,000 in taxpayer subsidies per new job created.
Amazon says it will invest $5 billion in its two new headquarters and employ more than 25,000 people in each location.
Using taxpayer-funded “bribes” to attract businesses simply isn’t efficient, says Ed Hudgins, research director of The Heartland Institute, which publishes Budget & Tax News.
“For decades, states have sought to attract high-profile businesses with subsidies—bribes really—paid for by taxpayers, but the bribes offered usually are usually not offset by the number of jobs, economic activity, and new tax revenues generated by those businesses,” said Hudgins.
“As states try to outbid each other by offering larger handouts to a prospective business, the potential benefits go down so the state that ‘wins’ the business often loses overall benefits on the deal,” Hudgins said.
Tax Cuts Expand Local Business
Other states offered Amazon more handouts than Virginia and New York, says Hudgins, pointing to a recent study by the Mercatus Center at George Mason University.
“This shows that factors other than those bribes go into business location decisions,” said Hudgins.
“The study also shows the levels of business tax cuts a state could make in lieu of offering subsidies to out-of-state companies to move in,” Hudgins said.
“Such tax cuts would allow local businesses to be established and expand rather than suffering under high tax burdens, which can put them out of business or drive them out of state.”
Hudgins says low taxes and fewer business regulations is the best state economic development policy.
“The best general policy for a state is to keep its own taxes low and business regulations minimal,” Hudgins said. “This will not only improve state economies but can attract out-of-state businesses without subsidies.”
‘Open to Abuse and Cronyism’
Economic development incentives are generally a bad policy, says Seth Barron, associate editor of City Journal and project director of the NYC Initiative at the Manhattan Institute.
“Generally speaking, offering tax incentives and economic development bonuses to corporations is a bad policy open to abuse and cronyism,” said Barron.
“The best way to attract businesses is to have an attractive regulatory and tax climate, combined with low crime and solid amenities,” Barron said.
Compared to other New York projects, this incentive package is more efficient, says Barron.
“The money being offered to Amazon for its HQ2 is largely consistent with existing incentives, and is tied to creation of actual jobs,” said Barron. “Furthermore, the $3 billion will be spread out over decades, when total city and state expenditures will total many trillions of dollars.
“In sum, the trade-off is much more efficient than in the case of other recent economic development debacles across the state.”
Subsidies for Billionaires
Businesses like Amazon don’t need the subsidies, says Justin Haskins, executive editor and research fellow at The Heartland Institute.
“These kinds of deals are so disgusting because, on the one hand, you have taxpayers basically footing the bill for people who are already billionaires,” Haskins said. “In this case, Amazon is literally one of the most valuable companies in the entire history of human civilization—and you have taxpayers in New York subsidizing their second headquarters. It’s pure insanity.”
Haskins says rather than offering incentives or special treatment cities and states should make themselves as attractive to businesses as possible.
“The reason New York City, Chicago, Boston, Crystal City, and all these other places want to give away the store to get Amazon to come is because they’re not willing to pass policies that would just make their locations attractive locations for businesses in the first place,” Haskins said.
Those policies, says Haskins, would benefit everyone.
“The free market solution would be better not just for taxpayers and for local or state governments but also for other businesses.”
Sarah Quinlan ([email protected]) writes from New York City, New York.
Michael Farren and Anne Philpot, “Amazon HQ2 Is the Only Competition Where the Losers Are Winners,” Mercatus Center, November 13, 2018:
Justin Haskins, “In The Tank (ep166) – Green New Deal, Amazon HQ2 Finds a Home,” Heartland Daily Podcast, November 16, 2018: