Are the New York subsidies to Amazon really so outrageous?

No, as I explain in my latest Bloomberg column, I do not think New York should have offered Amazon the tax break.  Still, the polemical outrage over this proposed policy seems to me out of hand.  It simply wasn’t that costly, unusual, or unfair.  Here is one bit:

Consider, by way of illustration, entitlement and discretionary spending on the federal level. A program such as Social Security or Medicare is done entirely by formula, as it should be; large companies cannot lobby for higher payments or lower taxes for their workers. Much of discretionary spending, by contrast, is research grants and procurement contracts. One company or researcher wins, and the others do not. Furthermore, the government will usually offer different prices and terms, based on how much value it thinks the winning bidder can bring to the project. All of which is to say: Discretionary spending requires … government discretion.

Viewed in the context, critics of local development subsidies are also critics of government discretion. Or, to frame the issue in a duller way: They do not believe local governments should treat economic development as a procurement problem. That’s a defensible position, but it is not obviously correct.

Another analogy is with private shopping malls, which commonly charge much lower per-unit rents to anchor tenants, maybe even subsidizing them. That is based on the view that a famous retail chain or movie theater can help other businesses in the mall by attracting customers and burnishing the overall image of the place. When a local government offers tax incentives to relocating businesses, it is in a sense acting like a shopping mall, which treats tenant recruitment as a kind of procurement problem. Offering differential rewards to prospective tenants is standard practice.

And note this point about fixed assets:

When a large company is going to make a significant investment in an urban area, it is hoping for support in terms of infrastructure maintenance or improvement, and indeed it invests on that basis. The reality is that municipalities often have difficulty fulfilling their obligations anyway. (This also holds true, unfortunately, for even basic promises to ordinary citizens. Ridden the New York City subway lately?)

In other words, Amazon cannot walk away from NYC the way a street vendor can move to South Carolina and set up a barbecue shop.  So they will be taxed harder ex post, if only in “in kind” terms, namely inferior services for the company and its employees.  The lower tax rate upfront is in large part an offset to this expected time consistency problem.

By the way, Singapore, Singapore, Singapore.  And I thank Garett Jones for the shopping malls point.

Comments

I think you're missing something here:

"Another analogy is with private shopping malls, which commonly charge much lower per-unit rents to anchor tenants, maybe even subsidizing them. That is based on the view that a famous retail chain or movie theater can help other businesses in the mall by attracting customers and burnishing the overall image of the place. "

The manager of the mall in this case is risking private capital. Should he or she offer the 'anchor' too much subsidy, they will suffer for it in the future...or at least the mall's shareholders will which provides an incentive to check.

What happens when rent seeking politicians do bespoke deals with sexy 'trophy' employers like Amazon or Foxconn? Their incentive is to get the deal done today for the sake of the headlines and move up while the next guy has to worry about actually implementing the deal. Hence the numerous stories about big deals that never delivered the jobs they promised, the trophy company deciding to shut down the headquarters or scale it back and the local gov't discovering the 'deal' left them little in the way of clawing back some of those benefits.

Instead suppose cities simply issued a 'wholesale price tax rate'. Any employer who, say, adds 5,000 jobs in an 18 month time period gets a tax rate that is 25% less which slowly fades over, say 5 years. (In year 2 the rate is 20% less, year 3 15% less and so on until it becomes on par with all other business).

How would this be better?

1. It doesn't discriminate against 'dull' employers who don't have big, splashy names.

2. It doesn't discriminate against an employer who maybe is already in the city, expanding rapidly and trying to decide whether they should do so inside the city or elsewhere.

3. It makes the 'deal' transparent and easier to analyze for both the companies considering it and the taxpayers. Contrast that with bespoke deals where the details are often secret, the deciding factor often includes a heavy dose of flattery given to the CEO and conversely the politician who is supposedly 'negotiating' the deal.

Note that this also provides an incentive for the company to actually execute the investment in a timely manner. If the company is dragging its feet on building the headquarters, it will risk losing the discount for hiring 5K employees in 18 months. An incentive for them to seriously commit to the project and not let it drag around as time goes on.

I like it!

Even that helps the giants screw small business, so no.

If, as I believe, regulation and unionism are dragging New York's economy under, then they need to be repealed for businesses of every size. Not just the giants.

I suggest you look at Scale by Geoffrey West. An economy like NYC will more or less consistently follow a power law distribution. You'll have one business with 25,000 workers, 5 businesses with 5,000 workers, 5000 businesses with 5 workers, 25,000 businesses with 1 worker etc. Adding a big business to NYC will add many more small businesses.

The issue is bad incentives and a fetish for bespoke 'deal makers'. Wholesale tax pricing improves incentives and moves away from cults of personality and towards a system of rational rules instead.

If it isn't that costly and isn't unfair do it for every company already there.

I agree that adding a big business will add small businesses but the reverse is also at least equally true. I'm afraid that what is lost in this conversation is the role of small business. The share of new business growth is down and there is less entrepreneurship these days which keeps the economy less dynamic and the exacerbates inequality. Small business as a rule treat their employees better than big business due to less power differential and they tend to play by the rules lest the rules be applied to them, which big businesses are able to transgress with impunity or at best a slap on the wrist. Also a lot of proposed "business-friendly" rules like TPP is written for only big businesses in mind and care not one whit about the benefit of smaller businesses. I'm a capitalist but a small business one and I honestly believe it has gotten the short shrift in the national conversation. NYC has lots of business and no stranger to capitalism but if Amazon is given a tax break then its fair that they start asking where's their break?

In my experience:

1. most tax subsidy deals already contain provisions where the subsidy is earned only if the jobs are actually created. Even though tax subsidies create more backlash than cash spending, in some ways they are safer. They pay out over time rather than right away, and only if the jobs actually come. People tend to react better to infrastructure investments, but in some ways they are really more risky. They pay out right away, and you spend the money before you know if the jobs get created.

2. The reason states/cities do not offer formula-based incentives to any company creating jobs is depressing but fairly simple: free riders. Subsidies are expensive, so the goal is to use them only when the behavior of the company is likely to be driven by subsidies. So why subsidize a company that is creating jobs and NOT threatening to leave? It makes the system fundamentally unfair, but much less costly than a fair one would be.

3. The deeper problem is that what is fair and what is self-interested don't always align. Subsidy deals are absolutely unfair; the only argument is whether it is the kind of unfairness we should tolerate to get other benefits.

In your experience how many deals are dramatic (big name politician and big name company) versus mundane? How many are made by, say, mayors or councilmen who expect to be in the same office 10 years from now? I suspect in those more numerous cases the incentives are better aligned for deals to be more sensible.

98 out of 100 deals are small and mundane, and might get a little local press. Most states have unofficial formulas they use to keep the terms offered to different businesses roughly aligned. In many states, business taxes are already pretty low so these run-of-the-mill deals don't cost that much. The business executive wants to tell the board they got 'a deal' and the state wants to be able to advertise it's 'business friendly' climate. It's all a bit smarmy, but pretty small potatoes.

But where it becomes a major public issue, those norms usually go out the window. So, Foxxcon and HQ2 this year; in past years Boeing moving its HQ, BMW building a plant in South Carolina, Mercedes building one in Alabama, etc. Opportunities of this magnitude are rare, maybe one every few years.

This is where elected officials play an outsized role; Cuomo, Scott Walker, etc. So even if Wisconsin's Foxxcon deal won't pay out most incentives until the jobs are actually created (to be clear, I have not read the terms so I dont know if this is true) Walker's political stance was to describe the deal in maximalist terms. Then when the company starts to hedge he looks like a dope, but valid criticisms of his public statements may not be the same as valid criticisms of the actual terms of the deal.

I would love to live in a world where this stuff doesn't happen, but I cant really see how to bring that world about.

I think what I proposed then makes a bit of sense. Instead of going gaga over some huge potential trophy deal, just have the mechanism in place ahead of time. Consider it might also influence the marginal business that isn't thinking of a 'deal'. If the deal is 25% less for hiring 5K people in 18 months, perhaps 15% less for hiring 1K. You may have 5 firms with 5,000 employees each who would are considering a 20% increase in their employment and such an incentive may keep them in the city. They aren't big name enough to merit a celebrity politician turning it into a huge production but if their finance department knows ahead of time keeping the 1000 new employees inside the city will reduce tax costs by $X in addition to sparing them the need to build a center in a totally new location that might make the difference.

'Opportunities of this magnitude are rare, maybe one every few years.'

Well, the number of subsidies seems to be increasing, as noted below - ' According to Good Jobs First, there were typically fewer than a dozen megadeals per year through 2007. Since 2008, that rate has more than doubled to an average of 25.'

Almost as if companies have discovered a better way to reduce their tax bills, in that classic incentives matter fashion.

'but I cant really see how to bring that world about'

By making such tax subsidies as illegal as bribery is? Just throwing it out there.

A state could enact a law depriving the Governor of authority to offer tax abatements. But for megadeals, the incentives are often enacted as a one-off by the legislature, and there cannot be a law making it illegal for a future legislature to pass a different law. That requires a constitutional amendment.

In my experience, contracting with the government is an abysmal experience precisely because of anti-corruption measures that require low-bid contracts, which eliminates any sense of nuance or differentiation. While there is corruption in private contracting too, the private sector seems to do a better job of policing the agency issues than government would.

--but . . . but--but Commissar AOC has spoken (she seems even to have begun public lecturing with an extended index finger and wide glaring stares of incredulity) and after all earned her bachelor's degree in International Relations and Economics with honors from Boston University.

Has any earnest scribe begun examining closely either 1) Commissar AOC's academic transcripts or 2) the structure and content of Commissar AOC's BU undergrad degree in International Relations and Economics? any notable professors contributing to the development of her informed notions?

(By the by: who are Commissar AOC's most favorite socialist luminaries, heroes, heroines? Does having favorites among socialist ideologues imperil her generous egalitarian sympathies?)

You tell 'em hun! Release those transcripts!!!

Her grades are not what interest me (I trust BU administrators and instructors to've dutifully recorded the grades she earned).

BU itself could be the forthcoming source to tell us simply what coursework she enrolled in or was obliged to take to fulfill degree requirements: did Commissar AOC in fact complete even one course in finance? how many courses in banking and finance? how many courses in tax policy? how many courses did she take in economic history? (how many courses in history--American or world--did she complete?) Et cetera.

She was an honors student, which I do not dispute: but what coursework did she complete, what degree requirements did she face in her BU program in International Relations and Economics? Should be easy for some several someones to say.

You are maybe naive in assuming that she took those courses with an open mind, as though she were a “learner” with perhaps an interest in becoming a technocrat or someone of that ilk who works to make an imperfect system better? But what if she’s a woke ideologue? What can balanced books or a basic grasp of financial econ etc. offer to an ideologue who wishes for a revolutionary change to the entire system?

If Commissar AOC is to be offered to the American public by our Media Establishment (and by her own [The Public's] Twitter account) as some fashionable "public intellectual" who got herself elected to Congress in order to offer us notions and visions that could "transform America"--then, like you, I have questions regarding her intellectual genealogy or biography.

I didn't even mention undergrad coursework she (took? may have taken? audited?) concerning the sciences that unleashed (and will have to be consulted to combat) Technogenic Climate Change: has she derived her informed views from ANYTHING she encountered in formal classwork for her degree at BU, or has she only picked up environmental (data, agitprop, disinformation, misinformation) from popular and wildly conflicting Media Establishment accounts? How has she sorted conflicting data to arrive at her startling positions and her sincerely-proffered solutions?

She'll never explain herself adequately if she insists on sticking with Twitter. If she needs help articulating, by all means let some intrepid scribe help her.

YAwn, AOC hate is rather lame and pathetic.

Oh, I don't hate Commissar AOC, I'm actually favorably impressed that she helped make Jeff Bezos, Inc., look . . . vulnerable.

--yet, I am no fan of Commissar AOC's views of political economy overall, to wit:

ode to our queen of the commissars

socialista, lata barista,
feminista fashionista:

a BU-minted brainiac,
first-class enviromaniac

(Unilever’s own Jerry and Ben
might paste her face on some tubs of crème―

serve with Owned-Socialist Syrups,
outrage, fierce glares, and carmine lips).

ascetic angel, supporters say,
serves zingers from tacqueria days.

performing live she can scream “FIRE!”
while audience and house expire,

our theatre-of-politics queen,
reprising agitprop for small screens:

aspirations to confiscate
to fund scarcity and the State.

where might she travel to show her zeal?
(will the Guggenheim want her high heels?)

good thing she leads charges at high and low tides:
to measure sea levels we’ll need some new guides.

Spammy, off topic, fail in contributing to the discussion. Your comment says more about you than her, and that's a waste because she's a more interesting person than you are. Your insecurity here was given away by the demand to see report cards. As if school transcripts matter in the world of grownups. I recall another obviously insecure guy who made a big deal about getting to the bottom of another well known politicians school transcripts. I don't think you'll go as far as he did.

In other words you do not esteem my verse. No accounting for tastes.

If Commissar AOC is the thoroughgoing democratic socialist she is or hopes to be, I suppose she'll gladly share her undergrad transcripts with us all in very short order: she earned her degree from tony BU with honors, yet "the public's right to know", et cetera et cetera et cetera and her being "the public property that only a committed democratic socialist can be", et cetera et cetera et cetera . . . I'm all but certain Commissar AOC will "do the right thing".

Do you possess a working sense of humor, by the by? Favorite humorists?

I'm sorry could you cite the law AOC got passed that prevented Amazon from taking NYC's deal? Or could you show me where a US Representative from NYC has veto power over acts of the NY state legislature in either the Constitutions of the US or New York State?

I was just under the impression she tweeted that she supported many other New Yorkers who also criticized the deal. I'm not sure how she suddenly became the most important person in the state.

Do not ask yours truly: direct your queries to Cuomo, de Blasio, et al., or to leading lights in the NYC Media Establishment.

(My ears may deceive me, or else I hear a Media Establishment joke being foisted--"the socialists will GIVE us the rope with which to hang them", a twist on socialist humor of another bygone era.)

You guys are both d-bags.

AOC hasn't even served a full 2 months in office and there is already full blown cases of AOC derangement syndrome as we have here. Above me I see you devoted at least 10 paragraphs in at least 5 comments and even a good sized poem(!) to your dearly beloved. Admit it. All this hate you are projecting is really fear. You are scared of your real feelings towards her. You might not like socialism but in an "opposites attract" kind of way you like that she has her own independent opinions and she can hold her own, even against you as you might fantasize. Plus you think she's kind of cute. What you have is not mere derangement but instead has transformed into an infatuation, an obsession. You have AOC obsession syndrome.

--and what might your padded armchair have to say? Does it concur? (Does your armchair see objectionable content in my prose or verse that you in your armchair diagnostic fit are not owning up to?)

I admit it: I devoted at least ten paragraphs over at least five posts and responses, and even ten rhymed couplets, to our queen of the commissars. Yes, I admit it. (Practically intrinsically evil, I'm sure.)

I project neither hate nor fear, as you might learn from reading my prose and verse.

I am not scared of my real feelings towards her: I am no fan of her shade of lip gloss any more than I am any fan of her dreadful demagogic socialism. (I am planning no HQ1 or HQ2 for her district or for any in NYC or NY state.)

I don't like socialism, since I see it as a dead ideology incapable of resurrection.

I don't mind independent opinions when they are supported with whatever--data, conviction, belief, I just prefer to be clear when provoked just where words and ideas come from directly. I am curious about Commissar AOC's intellectual development and history, but only because our corrupt and corrupting Media Establishment is shouting at full volume at us all to hear Commissar AOC if not to spend time listening to her: but then I keep waiting to hear her SAY something instead of delivering herself of one-liners and zingers over her own Twitter account.

No, she's not adorably cute to my taste: in point of fact, if you scroll back through MR forums of the past few days, you'll find my query as to whether she (Commissar AOC) is playing coy with Jeff Bezos, now that he's shedding one wife and perhaps a new girlfriend, too. I think candidly she might have been trying to snare his attention. (Maybe he'll wind up conducting that tour of Amazon facilities himself!)

Yes.

Right-wing hatred of AOC is amazing.

I'm sure she likes it. Without it she would be just one more first-term Representative trying to learn her way around DC.

If she likes it a lot, maybe a capitalist summons or a capitalist revelation yet awaits her. She could yet coin a "democratic capitalism" if she'd only wake up.

Any antagonism you might observe in my posts I reserve more the unelected discourse managers known as our Media Establishment: they it are who gives us all this splashy AOC coverage. I'm hardly complaining, insulated as I am having no TV, antenna, cable, or dish.

These deals are eventually going the way of sports stadium subsidies. Because they are arbitrary, corrupt, invariably are revealed to be boondoggles and with soft kickbacks, are negotiated in secret, unfair to the competitors and competing interests, the conditions aren't rigorous or enforced, and they rarely pay back as promised - and they come with a major implied opportunity preference from communities that invariably have major unmet needs.

True, there's no logical reason this should be the deal that tips the zeitgeist, versus, say the Wisconsin Foxconn deal.

I don't know why Tyler is working so hard to defend the push back on this bespoke deal.

[last sentence after Foxconn]... except that a tipping point was reach in that place at that time for whatever unlucky confluence of social, economic, and political factors which the deal boosters failed to anticipate.

"These deals are eventually going the way of sports stadium subsidies."

You mean we'll be stuck with them for eternity? That's what I'm afraid of.

Well, stuck with the 99 year deals...

I may be early in calling the end of empire, but I suspect public pushback on a lot of this stuff is going to emerge more robustly. Not to say stadium deals will become extinct. And some towns will still play. But i expect to see more scrutiny, and demand for more bilateral deals, and a few towns that vote them down.

Sure, they'll find a way to game it soon enough.

It would be nice if we could encourage the public to come to a consensus that any kind of unequal treatment for any business is unethical. The tax rate should apply to everyone equally.

"I don't know why Tyler is working so hard to defend the push back on this bespoke deal."

Tyler, like a lot of professional Libertarians, is adopting not a Libertarian perspective, but a Devil's Advocate perspective, wherein whatever the issue, whoever is objecting to something, any time anyone questions the status quo, it becomes a game of trying to figure out a way in which whatever the status quo is, is what's right.

Megan McArdle does a lot of the same shtick-- no matter what the issue, somehow whatever the status quo is on it, that's what's correct.

It makes for interesting journalism, and I guess it's a good intellectual exercise, but it's a wildly inconsistent thing to do perpetually over time regardless of the issue.

Tyler is reflexively contrarian, sometimes unthinkingly so.

'It simply wasn’t that costly, unusual, or unfair.'

Well, compared to 30 years ago it certainly was, but these days, only the little people pay taxes - so that large corporations can continue to not only pay no taxes, but actually pocket whatever government largesse is available.

Foxconn comes to mind, but somehow, the polemics surrounding that example of subsidy largesse seems to have slipped under the radar in such discussions - 'But what probably sold Foxconn on Mount Pleasant were the massive tax breaks Wisconsin offered to seal the deal – breaks that could end up costing the state $4.8bn if the project hits all of its targets. It’s the latest giveaway in a series of corporate welfare cheques cut for highly profitable tech companies and the largest to a foreign firm ever in the US.

So-called megadeals – defined by lobby group Good Jobs First as subsidies valued at $50m or more – are becoming increasingly common in the US as states line up to hand cash to big corporations, especially those in the sexy tech sector, in return for the promise of jobs. According to Good Jobs First, there were typically fewer than a dozen megadeals per year through 2007. Since 2008, that rate has more than doubled to an average of 25.'

And here is the kicker - 'Foxconn itself has been more circumspect on the number of jobs it will create, saying in a press release it will “create 3,000 jobs with the potential to grow to 13,000 new jobs”. Even if 13,000 new jobs are created, Wisconsin would be paying $346,153 per job at a subsidy of $4.5bn. An astronomical sum, but nothing compared to the $1.5m per job cost if the deal ends up creating just 3,000 new positions.' https://www.theguardian.com/cities/2018/jul/02/its-a-huge-subsidy-the-48bn-gamble-to-lure-foxconn-to-america

'When a local government offers tax incentives to relocating businesses, it is in a sense acting like a shopping mall, which treats tenant recruitment as a kind of procurement problem. Offering differential rewards to prospective tenants is standard practice.'

Um, no, because a government subsidy is directly based on the fact that regardless of how good or bad the deal, the taxpayers are on the hook.

But there is a certain kind of libertarian who seems to have an amazing inability to distinguish between private entities and governmental ones. Though hopefully, such libertarians have nothing to do with public choice economics, as such an inability would be embarrassing in that case.

So that is it. Rich people must get humongous subsidies. To Hell with poor people. As famous American conservative Mr. Chambers wrote about Ayn Rand's philosophy: "From almost any page of Atlas Shrugged, a voice can be heard, from painful necessity, commanding: 'To a gas chamber—go!'"

Such is life in Trump's America.

So this started in 2017?

No, but it is clear all stops have been pulled out. Malefactors of great wealth control the American government as never before.

In fairness, at least NYC didn't promise that it would force everyone to buy goods from Amazon.com ;-)

That would be the straw that would break the camel's baxk.

I wonder if Cowen would find "pay to play" more amenable. I honestly don't know why governments don't structure deals this way anyway.

If, in fact, the tax concessions were going to be win-win, both parties would be more protected if the concenssions were indexed against jobs, or possibly investment. For each job they create, offer a tax rebate prorated against salary over, say, 10 years.

If Walker had been interested in crafting a deal that would actually have benefits for the surrounding community, he wouldn't be the laughingstock of Wisconsin today. Notably, the words "Foxconn" or "Wisconsin" appear nowhere in Tyler's article, a curious omission considering the obvious comparisons and even more obvious demonstration of downside risk. (Although, if you view this similarly to stadium deals, "risk" is an understatement; it is a near-certainty.)

>both parties would be more protected if the concenssions were indexed against jobs,

Why would that help the company? Or are you suggesting even larger subsidizes, but with performance guarantees??

My assumption: the local government probably doesn't have much bargaining power b/c lots of other towns are ready to offer similar deals.

Tyler, you need to learn that argument-by-analogy is by far the lowest form of argument, and then stop doing it.

If someone asks you if Amazon should get tax relief for building in NYC, you should not say "Well let's look at Medicare" or "Let's discuss private shopping malls." The horror here is that you think you are being clever, when you are clearly not.

When the subject is whether or not Amazon should get a tax break, you should discuss whether or not Amazon should get a tax break. Changing the subject via weak (or terrible) analogies simply proves that you have absolutely no idea whether Amazon should get a tax break.

I don't think that's a weak analogy. If you are going to buy 5,000 bagels a day it is sensible that you will get a different deal than 5,000 individuals who will buy 1 bagel a day. A single business willing to come into town with 25,000 workers should merit a different deal than 250 businesses coming with 100 employees.

Whoooooooosh.

That is the sound of the point going over your head.

If you are presented with a question, and the first thing you need to do is change the subject to some OTHER question and claim it is the same, you are an idiot who is wasting everyone's time.

Answer the question, Claire.

Amazon should get a tax break for the same reason the guy who buys 5,000 bagels gets a break; economies of scale. 25,000 employees under a single employer saves the city and state time and resources than 25,000 employees under 5,000 employers.

This applies to bagels as well. To sell 5,000 bagels to 5,000 individuals per day will require multiple locations, multiple people to process the sales, multiple marketing efforts. A single customer of 5,000 bagels can be serviced by a single site in a low rent, non-prime retail space.

I think there's a very strong argument that Amazon with 25,000 people should not be taxed the same as, say, 6,250 food trucks each with 4 workers.

Where I get off the train here is the argument that this means we should ok "deals" cut by celebrity seeking trophy politicians seeking trophy business names. Instead I think the city should set out what it thinks are proper incentives for large employers and let them take or leave them (see first comment here).

You didn't like Tyler's mall analogy per your excellent comment at the very top so Amazon is now like a bagel shop? Just pulling your leg, I agree with your point contra Tyler that government discretion is less preferable to an upfront, transparent rules-based system. If Tyler wants NYC to be more like Singapore, let's get the good stuff like a sovereign wealth fund, low taxes, and public housing. Subsidies for the politically connected is so small for something so politically fraught.

Both NYC amd Singapore have public housing, the difference is that the Singaporean clients literally have skin in the game, if they thrash the housing, or criminally receive it when not eligible, they can get flogged.

https://www.manhattancontrarian.com/blog?tag=Affordable+Housing

Yes, they are. This is how giant companies force small fry out of markets. Not by honest competition, but by government force.

We need a constitutional ban on all such government discretion, forever.

He had quit his job and cashed out his saving account, and his pockets were full of cash.

Do you have a point other than mere envy?

Deals like these are exactly how capitalism got its undeserved bad name.

"but all Duties, Imposts and Excises shall be uniform throughout the United States. "

Unfortunately, in practice, this is one of the clauses SCOTUS has deleted from the Constitution.

I'm a free market liberal but also a constitutionalist. These interstate trade deals involving taxpayer subsidies need to be regulated by the Federal government. The EU is doing its job preventing Luxembourg, Ireland, and various British commonwealth countries from doing an end run around taxes. I believe one should minimize one's taxes within keeping of fair play but to do so with a Double Irish with a Dutch sandwich, which Google and Apple exploited, is literally beyond reason and grossly unfair.

Google has 8K employees in NY now. Plans to build office space for 12K more. No one cares because Google is not asking for welfare benefits https://www.wsj.com/articles/google-plans-large-new-york-city-expansion-1541636579

The discussion is not about if the offer is costly or not, it's just a simple WHY?

"Are the New York subsidies to Amazon really so outrageous?"

That question can answered with a yes or a no. The problem is that Prof. Cowen already framed the issue as if the problem were the cost of subsidies minding the most important question of why subsidize Amazon in first place.

One alternative analogy to the shopping mall would be European aristocracy in the middle ages. They were exempt from normal taxation for the longest time because they "served the state in other ways." Just sayin'....

So that is it. Americans have become serfs.

And Tyler would have us bowing and scraping before our betters, if this post is any indication, and then thanking them for the privilege of doing so. Some classical liberal, this Cowen character is. Geez.

Sad.

"Often cited as a model in many other discussions of economic policy, Singapore has offered differential tax and development incentives for most of its history, with great success"
Where's the counterfactual where Singapore offered a strong rule of law, low taxes, low regulations and the highest-IQ workforce in the world but no development incentives?

The point about research grants and procurement contracts is also weird; the rationale for their existence is that the projects they're funding are public goods, and they're given to the best bidder or to the project with the best potential.
If they are indeed public goods is another story, but a new campus for a private company is most certainly not. And New York didn't pick the lowest bidder, nor it provided a motivation as for why Amazon would be worthy of such breaks but other companies wouldn't - it all happened in private meetings between Amazon and government officials.

Some companies are more equal than others

Then there's export subsidies like the Export-Import Bank (currently beloved of Democrats and hated by Republicans, though it's switched), tariffs (the same but reverse), and so forth. Many of those types of proposals are endorsed by progressives at a national level, including for grants to local projects.

One obvious retort is to say "Well, it's fine for the United States government to attempt to lure business to the country or encourage exports, but, just like the negative commerce clause, we don't want individual states and municipal governments competing with each other, it should be organized at the US level. We might like transnational agreements to prevent this race to the bottom at the global level, but until we have that we have to play the game." That's a pretty powerful retort, although progressives are leaning pretty universalist these days. It also doesn't explain why, in the absence of a federal law preventing states and municipal governments from offering subsidies, why NY isn't forced to compete.

It would be more consistent for progressives to abandon their newish love for the Ex-Im Bank, if they're going to to oppose (rightly, I think) the Amazon subsidies.

Well, like a lot of things. They start out as defensible ideas, when handled transparently and on a more modest scale. But they eventually mutate into cesspools of corruption, cronyism, and restraint of competition.

I have no problem with local commuties wanting to develop a niche industry, or a nation wanting to stimulate innovation. But somehow these become the Foxconn and Amazon deals.

Tyler’s analysis is accurate and appropriate. The NYC subsidy is hardly novel, while economically questionable.

My visits to Singapore over the past 35 years to negotiate tax subsidies has proven highly beneficial to both parties in the deal. On the other hand, most jurisdictions are hardly capable of negotiating a reasonable outcome with highly skilled corporations who understand the economic benefits better. In other words, it’s not a game you want mostly incompetent and sometimes corrupt politicians involved with since the better end of the bargaining will normally go to the corporate side of the ledger.

The Singapore EDB, on the other hand, is staffed with highly trained professionals who monitor and enforce the deal to ensure Singapore gets at least its fair share. If you have any doubts, just look around Singapore and realize they have no natural resources outside of human capital. They have clearly played the game right and have benefited enormously. NYC or and state or municipal government is playing stooge most of the time and, in my view at least, should stick to basic services to attract business.

"no natural resources"

Everybody ignores the Straights of Malacca, and natural funnel for sea commerce they create. I'm sure Singapore has done well, but Raffles put the colony there for a very strategic reason. And daily traffic from the Indian Ocean to the Pacific still flows.

"It simply wasn’t that costly, unusual, or unfair"

And that's acceptable? If I were a locality, I would organize a letter writing campaign from the local children begging the great and powerful Bezos to locate in their area. Such groveling for a noble cause will teach children early on how our government works, as you say.

Correct me if I am wrong, but didn't we go to War with the Crown over a Tax break??? How did we get to the point where we have to pay companies to hire us to work for them??
Why does one company get a tax break and the other does not? Is this fair? Is this part of a "Free Market"?
Wouldn't it be best to not have any subsidies and let the best one win??

I agree with all that. But I also believe that, for example, Detroit, ought to be able to spend public money to attract and establish a new industry to replace manufacturing. if it chooses to.

So the devils is in the details.

The realpolitik of it is that government will tax in inverse proportion to the target's ability to avoid that tax (vs fairness or equality). If you buy that assumption, the future is real property taxes, followed by user fees, followed by sales taxes (i.e., charging for access to residents' purchasing power).

Another piece of evidence in the folder toward the proposition that Mercatus libertarianism is humbug. Mercatus is about cosmopolitanism, and doesn't object to patronage mills so long as you hire PLU to run them and subsidize exotic foreign cuisine.

'Mercatus is about cosmopolitanism'

No, it is about making the rich richer - no one involved cares about any higher principle than that.

I would like to see a 200% federal excise tax on subsidies handed out by state and local governments to for profit entities. On general principle, the rate would be 10,000% for sports teams. Companies are rent seeking. Put an end to it.

Does anyone else think there is a delicious irony in the likes of de Blasio supporting the Amazon deal? I mean, in the tax and subsidy competition between the bidding jurisdictions, isn't New York like the Very Big Corporation that operates with an unfair advantage over smaller cities? That's the angle AOC should have played, rather than her dopey comment about better uses for the 3 billion. If I were a socialist (which I'm not), I would be arguing that Amazon's capital ought to be directed to locales more in need of it (like, say, Flint, MI or Youngstown, OH).

Except AOC had a point about $3B and better uses. It's quite possible 5000 businesses in NYC will hire 25 people each in the next few years. Since none of those companies are famous trophy ones, they won't get a custom negotiated tax deal and will simply pay whatever the tax rates are in NY.

It's surely more likely that those 5000 businesses would each have hired 25 people if Amazon had also hired lots of people, right? Otherwise, what's the point of cities?

Maybe, maybe not. Above I referenced Scale by Geoffrey West. Employers tend to follow a power law distribution. You'll have one company employing 25K, 5 companies employing 5K, 100 companies employing 250 people etc. I believe he found that is more or less consistent over large premier cities.

That would imply it really isn't possible for one city to achieve all 25K+ employers by, say, going extreme and saying they will forgo all taxes to bring 'big boxes' in. If NYC is running at full employment it isn't clear to me adding Amazon expands the pie or will just shuffle some of the less sexy businesses out.

But NYC has lost lots of jobs in the past few years because of... AMAZON!

https://www.theatlantic.com/ideas/archive/2018/10/new-york-retail-vacancy/572911/

"Except AOC had a point about $3B and better uses. "

You miss the point. There is no $3B. It is a discount on taxes. No Amazon, not taxes, no $3B.

Read the full comment before you respond to it. Actually just make a point of reading my comments before you respond. Do as you will with other peoples' comments.

Here's an idea: subsidies must be paired with local scope. The max subsidy a local jurisdiction can give out relates to its size, i.e. based of population, median income, etc

Otherwise there's some sort of tax penalty

“If only because it looked bad...” (from the article)

Which is the only difference in this and any other similar deal. These things are usually unnoticed little articles that live at the very bottom of a page for about 6 hours. Amazon’s only mistake (If mistake it was), was making (or letting it become) a national sweepstakes that everyone knew about.

some good points especially about the NYC subway, which has really deteriorated under incompetent and probably corrupt government officials.

Our city illegally subsidized a massive sporting goods chain, the result was 4 local sports, bicycle, fishing stores going under.
Democracy works right up until your fist meets my nose. This isn't America, it's not even Mexico.

"By the way, Singapore, Singapore, Singapore"

....is a tiny Asian nation that's basically a city-state and has very little to teach us about how to do things in the US. So, what was your point?

We talk incessantly about the paramount importance of competition between corporates as a way of driving innovation and bringing prices down to marginal cost, and that is accepted truth in our profession. But competition between governments is treated separately among the public and among many (but not all) economists. But I don't see why that should be the case.

Cities are fundamentally long term infrastructure assets with high fixed costs, which depend heavily on sustaining long term demand from customers (residents and businesses).

Virtually all other infrastructure businesses work hard to incentivise new customers if they arrive in big blocks (like airports, shopping centres, or airlines with corporate deals, or real estate developments). In that sense cities are in reality behaving in the same way that you would expect them to do so by offering incentives; the only difference is that there is a solid lobby which is simultaneously arguing that governments should be exempted from the competitive tensions of other infrastructure businesses. That includes shaming governments which have decided to offer an incentive, whether that's a regional city in the South, or the Netherlands or Ireland or the Cayman Islands offering substantially lower tax rates. In any corporate environment this would be accurately described as cartel behaviour, including (and especially) proposing punishments against cartel dodging behaviour.

I classify this as a 'fine for thee but not for me' type of argument. GM should give the me as the government a block discount for purchasing lots of cars - but I shouldn't have to compete with the neighbouring city to give GM a reason to set up its factory nearby.

I am starting to thing this was really about unions for the Democrats. The whole Tax thing is a distraction. Amazon is very anti union.

Some decent points, but I think it should be mentioned that the site was already slated for development before Amazon came about (18,000 people could have lived there), and the more important element is that many NIMBY activists who came out of the woodwork against Amazon also opposed that very positive project. Look at AOC's recent tweets where she's basically against all development.

Also many of the pro-Amazon people simply ignore the aforementioned fact that the site was going to get developed, and still WILL get developed. So the disingenuous argument that "wow the city is leaving all these tax revenues on the table" misses the fact that there will be tax revenues. Maybe not as big, but maybe even more!

The other problem with the debate is that 80% of these tax credits were as-of-right. Amazon can still access most of them! They have 5,000 employees in the city and will likely double that in the coming years. But those tax credits are not gone! And I do think Singapore is a good comparison.

First off, New York has been doing a similar process for decades now to get businesses to stay in the city or attract them (heck think about the sweetheart deal Koch gave MSG whereby they pay zero property taxes or ConEd bills!) Compare the process in Singapore to New York. Over there, there is a serious process with rules and projections. The public servants execute at an exceptionally high level and actually deliver. In New York? It was a secret agreement with zero oversight where the city government was transferring actual land (nobody adds the value of those plots of land to the perks Amazon received), as well as giving a $500m cash grant for the construction and other perks. The one public servant who has recently stood out for ability, Byford at the NYCT, has been undermined left and right by our narcissistic Governor. Singapore is a model state while New York State and City are literally banana republics.

I have a hard time objection to popular outrage over crony capitalism.
This strikes me as not much different in nature than Pittsburgh's trying to extort money from Uber in exchange for the right to drive their self-driving cars around. In one case, it's a carrot and in the other, it is a stick, but the essential similarity is that it's the government not treating all market participants equally under the law.

I think the outrage is largely motivated by anti-Amazon sentiment. (And the hate for Amazon specifically I think has something to do with Jeff Bezos being an evil evil libertarian who progressive love to hate) . However it CAN be a teaching moment for libertarians to say "Yes, the government shouldn't be giving special tax breaks to ANYONE, not just companies that you've decided arbitrarily are evil. "

And while I'[m on the subject, isn't it a tad hypocritical for Bezos to be accepting arguably unfair market advantages. I don't think "everyone does it" is a fabulous excuse here. Set an example, damnit.

(And the hate for Amazon specifically I think has something to do with Jeff Bezos being an evil evil libertarian who progressive love to hate)

He is? Or is he the guy that owns the Washington Post, progressive hero for calling Trump to task?

I think the outrage is largely motivated...

The search for hidden 'true motivations' can get very tedious. Here you have a massive giveaway, the details are mostly secret, to a 'trophy company' done by a 'trophy politician'. Progressives in NYC have only to look at the fiasco with Foxconn to be skeptical of such deals and their history of failing to produce the jobs and benefits promised.

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