Words of wisdom

Amazon will pay property tax on its new Long Island City offices. It will pay corporate tax — not just on its profits, but on its capital base. Its employees, especially highly paid ones, will pay the city’s personal income tax. Those taxes, of course, will be somewhat offset by the incentives that the city has promised the company — up to $2 billion, depending on how many people the company hires and how many facilities it builds. Those incentives were a wasteful way to attract corporate investment. But in the long run, the tax revenue New York City gets from HQ2 will probably far exceed the cost.

That is from Noah Smith at Bloomberg.  The “will” needs to be changed, otherwise right on target…

Comments

Here is a really great piece from Vox on this!

https://www.vox.com/policy-and-politics/2019/2/14/18225001/hq-2-new-york-canceled-housing-impact

LOL! Vox: "Simply put, while locating large pools of high-salary white-collar positions in the New York and DC metro areas makes a ton of sense for Amazon, it doesn’t actually make that much sense for either greater New York City or greater Washington. Amazon’s presence will tend to exacerbate those cities’ crises of housing affordability and overburdened transportation infrastructure. "

Hahaha! Reminds me of a typical "Balkan" story about a genie in the bottle granting three wishes. The first wish was for a long life, the second wish was for great riches, and the third wish--typical of "Socialist" mindsets often found in the Balkans and now the USA--was that the neighbor remain poor. Misery enjoys company in AOC's district. After all, it's unlikely rich professionals would vote for AOC if her district went upscale.

Thank God they've saved bucolic Long Island City, Queens from evil, unjust AMZN HQ2 and 25,000 felonious, high-salaried miscreants and marauders.

Unrelated, NY's dire crises of housing affordability and overburdened transportation infrastructure should be easing as 48,510 productive, salaried lowlifes emigrated to FL or TX during 2017 and 2018; and NYS income taxes receipts are estimated to decline $2.3 billion.

Not to worry those human flotsam outflows are more than offset by inflows of hundreds of thousands of virtuous, uneducated, unskilled invaders and assorted other tax dependents who are contributing to resolving the long term crises of unaffordable housing and overcrowded buses/subways.

Meanwhile, in the real world outside of conservative revenge fantasies:

New York City tax revenue growth, FY 2018: + 8.1%

Don’t let the facts hit you in the way out.

When one proceeds to fling around numbers/statistics first one should consider: level and trend. Here NYC's tax inflow is up 8% from a low level relative to outflows.

The NYT reports that the 2018 NYC budget deficit was up 17%.

It ain't "revenge fantasy" if it's true.

How is tax revenue growth good??? What would be "good" would be lowered government costs and lowered taxes.

Just curious, Ray. How old are you?

He is old enough to (legally?) have a hot half-his-age Philippina gf

He seems to carry the weight of the Vatican, tho.

What clamence said... and old enough to know better.

Jeff Bezos put more effort into hunting down those dick picks than he did winning over NYC. I noticed that the National Enquirer still has a big presence in NYC even though they moved HQ out state. I wonder if that had anything to do with this. Pecker probably has most of Manhattan blanketed with his people.

There is nothing in the article about opportunity cost.

Doesn't Amazon building and hiring reduce the hiring and building that other corporations would do. So comparing Amazons taxes to zero is not the proper comparison. It should be compared to the taxes some other firm would have paid.

Doing it this way should produce very different results.

But that area has been relatively quiet. Train yards, warehouses, a few hipsters, a few motels and new apartment towers. It's blah and now will stay that way.

Yes, who roughly is going to move in and produce a similar increase in property values and income levels with that same space?

I imagine the real reason Amazon left isn't the subsidies; $3 billion isn't 6 months of profit for them even now. Rather, it's the hate; distraction is thought to be very costly, and they decided it wouldn't go away.

Who else has been offered a tax-friendly deal to do so? Presumably if it made sense to offer that deal to Amazon, NY can offer it to any and all other businesses to move there. Or it can offer the deal to businesses that are already there, and reap the presumed benefits from expansion.

It's possible that Amazon HQ2 is a better economic prospect than low-skilled hipster hotels.

"Doing it this way should produce very different results."

Continuing decline in job opportunity, decline in GDP, decline in tax and fee revenue, continued decay in infrastructure.

Clearly you view even worse subway service and increased road congestion from people substituting it for mass transit, as positive economic developments. Not that the shift from rail and ocean transport for NYC businesses has the impact of much higher truck traffic, increased even more by much faster inventory turnover rates.

Convert factories to offices while not reducing goods turnover in warehouses, and you end up with multiples of vehicles on the roads designed for past eras. Warehouses employed hundreds of workers who walked or road trolleys but were then replaced technology, forklifts and pallets and containers, and shifted from storage to fast turnover distribution centers as a weekly train delivery and a dozen trucks per day turned into hundreds of truck in and hundreds of trucks out. Factories employing local resdents of working class are replaced by professionals in offices who will live all over based on having good schools and single family homes with backyards, and the ability to get to multiple offices of competing and complementary businesses. Working class neighborhoods with a hundred housing units per acre can be turned into professional housing at 40, or 20, housing units per acre, 40 housing units to 10 housing units.

When these changes are made one old building at a time, or one old block at a time, it takes a few years before the existing residents notice the changes, and a few years to organize, but there is nothing they can do to stop the changes, beyond making it harder to terminate leases, but people die, or move, ending rental or lease agreements so the owners can change who and how the property is used.

But when entire blocks of land are redeveloped in one big project, environmental impact reviews kick in, like transportation impact, utility capacity, etc. Rather than hike taxes before any such development is proposed to build infrastruccture to attract big projects for big businesses, the conservative free lunch economy policy has been to charge fees to develooers to build public infrastructure "for free" to the existing businesses and residents who get to dictate capacity for their benefit.

Given such infrastructure has been paid for by taxes on everyone in the past, the businesses forced to pay fees get tax credits for the fees they are required to pay. When this end run around tax hikes was invented in conservative states, businesses would build in a town or rural county get big tax credits and then abandon the developments, leaving ghost buildings and huge debt burdens for the communities.

Lessons learned, so now the tax credits require delivering actual jobs over a perod of a decade or more.

In some cases, projects are developed without the tax credits, with the developmennt oaying all the costs. I can think of developments where highway exits are built into developments, which over time draw in other developments to the area, but the highway exits to serve only the original development become disputed because they will not serve the other businesses.

Who gets to decide who uses public ways that were paid for privately to serve just the private party paying for the public way?

I bet you can find a big shopping center easy to access from traffic intersections with lights and lots of lanes, with the business next to them nearly impossible to get to because it did not pay to build the intersections serving the shopping center. I know of cases where walls and fences have been built to prevent parking and walking to the neighboring business.

But looking at it from an economic point of view would mean but aside your preconceived notions and "mood affiliation" and try to be objective. Certainly there's no place for that in economics, and especially from the dotard Tyler Cowan.

So that is it. The Almighty Dollar has spoken. New Yorkers must kowtow to fat cats and surrender their city and their children's future. They must allow outsiders to ruin their city.

Soldiers can not in time of peace be quartered in any house, without the consent of the Owner, nor in time of war, but in a manner to be prescribed by law, but big business must be quartered in America's cities at a high price!!!

Whatever you're smoking, pass it over to me.

Your wife smokes 5 packs of BBC Darks a day. I'll pass on that.

This one is a impersonator.

neon connection!

I do hope your opinion is shared by a small minority of Americans.

If you spend much time here, you'll learn that Thiago has nothing useful to say. I am not sure if the opinions he espouses are his, or he is just trolling. Whatever the case, his comments are by far the most ignorant and anti-American that I've encountered.

So that is it. Opposing America's oligarchs and supporting the common man (or woman) is being anti-American. Supporting Red China, Japan, the Zionist Entity and Saudi Arabia is being pro-American

What have you got against Japan?

Japan is an aggressor. It is a trade manipulator and has never repented of its war crimes. It keeps persecuting Brazilian citizens. It has never apologized for its terrorist attacks against Brazil.
https://en.m.wikipedia.org/wiki/Shindo_Renmei

It also kidnaps Brazilian soccer players, much as Kim Jong-il would kidnap South Korean actresses.

https://www.nippon.com/en/features/h00051/brazilian-players-a-long-association-with-japanese-soccer.html

It is not that simple. Some Brazilians work for the Japanese regime, but how is it different from prostitution? Also, it never ends well.

https://www.forbes.com/sites/peterlyon/2018/12/31/carlos-ghosn-to-remain-in-jail-after-prosecutors-extend-detention/

The scorpion and the frog.

Long Island City: Leave us alone to fester in our decrepit shithole.

If it's the China model Cowen prefers, so be it.

But why Amazon of all companies. China subsidizes companies that are at the frontier.

What frontier? No Chinese company has a good reputation outside China, that means the end of happy multilateral trade will hurt them much more than USA or even Europe. One assumes the Amazon "subsidy" was a tax mitigation in apology for NYC tax rates that are set high in the hope that incidence will lead to the extortion of tourists and bankers.

Needs changing to 'will not'

Amazon does two things, rent data center space and manage delivery trucks. The software geeks are likely to stay in Seattle.

You don't know what HQ2 was, do you?

... it's the basic duty of all governments to pick winners & losers in the private economy -- and actively steer the economy in the proper direction.

U.S. Federal and state governments have been doing this on a massive level for over a century. Works Great (?)

No, it’s not at all on target. If the logic is that the government should pay incentives to a business that is likely to generate tax revenues in excess of the incentive, why only Amazon? Why not every business that is likely to be profitable? They way to do this is to cut taxes across the board.

How many NYC businesses are about selling financial services, entertainment, or tourism services to outsiders and foreigners? To extort the outsiders, you set a high tax rate. Problem is you need the targets to remain in place, and few new companies will arrive to willingly join the stationary bandit and captives relative to, say, Texas or Shenzhen.

" This is isn’t trickle-down economics — it’s social democracy in action."

Noah's a funny man.

@jbarro just said:

"So I think people are getting this wrong in a few ways. There’s no pile of $3bn. But subsidized Amazon activity would have, to some extent, crowded out unsubsidized activity. Now that activity will happen and be taxed, improving New York’s fiscal position."

Hard to know the overall effect. My guess is a wash: Amazon will still increase its footprint in NYC, as that’s where a significant percentage of talent wants to live.

It can pretend NoVa will get a substantial chunk of the “lost jobs” but I doubt that’s even remotely true. Who wants to live in Virginia ? Not dynamic enough of an economy outside national security, so that campus will heavily cater to government contracting, lobbying, and corporate law. The unspoken truth here is that NSA, CIA, FBI, and DIA need a shitload of secure cloud computing power. So NoVa makes sense.

But amazon will still grow its nyc footprint exponentially yoy, just like google and Facebook. Great lesson in how tax regimes affect where industry chooses to locate. CA can tax all it wants, people will still want to live in SF. Talent gets the deciding vote on where to locate, and so far for high marginal product talent it’s SF, NYC, Boston, and Seattle.

Texas could institute a negative income tax for talent, and still not create the next Silicon Valley.

"Who wants to live in Virginia ?"

Amazon's proposed HQ2 will be in Crystal City, yes? I've been there; it's not the most exciting part of the metro area. But it's very much part of the DC metro area: served by Metro and even in the basically uninteresting neighborhood where our hotel was, there was a huge set of diverse restaurants within two or three blocks of our hotel.

Large bits of NoVa strike me as very suburban but Crystal City, despite being in VA, was more like urban DC, which I believe still has by far the highest average income and average education level of any US city, and is also a huge magnet for young people seeking professional careers. Not necessarily in government or public policy: one standard route to get a PhD in economics is to work as an intern at the Fed Board of Governors for a year or two before applying to grad school.

I.e. I think the question is not so much who wants to live in VA, but rather who wants to live in DC because Crystal City is so close to DC. The answer is: a lot of people.

@mkt42 - right on. And something like 8 out of 10 of the richest counties in the USA are in Greater DC. NYC has a lot of hipsters with funky hair but aside from those freaks, nobody normal wants to live there, and normal people are the ones with money. As for excitement, I can think of a few places in the world more exciting than NYC, but if you want excitement, take a vacation, no need to live it everyday in your life.

Did anyone crunch the numbers on all this? The taxes Amazon will pay + the wages it will pay, and then run it through the existing models to see if the benefits exceeds the $2 billion of subsidies?

Pretty routine stuff, albeit lots of room for dueling assumptions.

You also have to include higher property values, which would have added to city coffers, and the multiplier of all those Amazonians (?) eating at local restaurants, etc.

agreed. However the topic of multipliers is fairly well accepted, at least conceptually.

Don’t take tax advice from a finance professor! A little googling will show you that the property taxes (technically, payments in lieu of taxes) would have been modest for the first decade because they would have been based on the pre-Amazon-improvements value. As for income tax, no one can say for sure, but it’s been widely reported that Amazon, like many clever companies, has paid no federal income tax for the last two years. The NY business capital tax is capped at $5 million annually (which Amazon is probably already paying). So the real revenue would have come from just personal income taxes paid by employees. Maybe New York would have come out ahead... but do you really think Albany and Queens snookered Amazon into walking into a huge tax bill?

An excellent point, and nice reminder why nearly everything we read in the news these days is 100% bullpoop. Put out by people who either know full well, or are too dumb/obedient/lazy to check.

This line: "do you really think Albany and Queens snookered Amazon into walking into a huge tax bill?" is the best thing I've seen regarding this story.

Amazon paid no federal tax, but it paid about $250 million in state and local taxes in Washington for 2017, according to the Seattle Times.

Local Taxes and (state) Business Tax may be; WA ha sno State Tax.

Why does Tyler link to Noah so often? Noah is easily the most overrated econ blogger around, and has been for at least two years.

He’s a fellow writer at Bloomberg view.

There is another dimension to all of this. New York is a Union Town. Amazon is Not - to put it mildly.

I want to note that the Unions were not only objecting to the lack of unions, but to the facial-recognition technology that Amazon employs. Since that is a concern that goes beyond union members, I think it's interesting to think about how unions may protect the general populace in the new privacy arena.

https://twitter.com/mtracey/status/1096387883139821568

Why stop now? Foes of the Amazon project should go around to all the existing NY-area businesses that do not meet their criteria, and pressure them into leaving

It's certainly their prerogative.

The most incredible thing about all this is how, even with nearly unlimited resources, Amazon so thoroughly misjudged this. A lot of people are getting fired for the magnificent screw up.

Hubris of the masters. They probably think everyone loves them.

In their defense, I definitely think the worm is turning on billionaires, and tech beheamouths culturaly. Not sure how many of them saw this coming, I mean concretely, not as in "someday."

Lol. Cute.

Amazon got hundreds of millions of dollars worth of data for free. Including from NYC. Amazon pulled out because it doesn’t need the press and knows the Feds will become a larger and larger revenue source for cloud computing.

They got everything they needed from the stunt. NYC has a law for tax breaks, they’ll still get $2.5 billion out of $3 billion (btw in true journo-list fashion these are not in NPV and are over years). You can make an argument Ocasio-Clearly Failed Econ won by saving $500 million over 10 years in tax breaks, but the tax break deal included job creation performance metrics, so it’s probably a wash.

What’s certain is that the Amazon offices will grow in Manhattan, and LIC won’t see a dime. So Ocasio-Cortez will help the rich get richer.

"Amazon got hundreds of millions of dollars worth of data for free. "

I've seen this idea repeated many times as fact. I have no idea, but I'm skeptical that whatever they gleaned from the experience is that valuable.

It's great to see Noah turn from left leaning populist shill to one of its best in-group critics. Gives me hope for the future.

Lost seems that this was not AMZNs evil imposed plan. It was NYCs voluntary plan. Lack of political buy-in was the problem.

AMZN thought negotiations were done. NYC thought they were just beginning.

Just wait until those who elected AOC ask her: “Hey, why did you scare Amazon away? We know that New York’s government would have less tax to redistribute, but we would have more opportunities to live on.

Let them eat cake!

Those who voted for AOC are fine with it. They'll vote for her again.

Weeks ago Tyler applauded Arnold Kling's description of some policies as increasing demand and reducing supply, but now Tyler applauds policies that increase the cost of undertaking all projects and then pays large amounts for some projects to compensate for that increase.

Now I understand Tyler's support for Inclusive Prosperity.

While subsidies are an unseemly practice, I see the value in giving to get. However, placement of business in larger cities like New York and Arlington build on existing infrastructure and compete with other businesses already willing to invest. Wouldn't investment in a smaller city be a better bargain for all stakeholders? And yes, I am biased towards Nashville.

Ultimately it seems that cities like Nashville will indeed do better, but for cultural rather than economic reasons. in my limited experience Nashville is a far more welcoming and integrated city than New York.

None of the press reports I’ve seen on Amazon’s $1.7B+ subsidy describe what form the benefits would have taken. But that information is crucial to assessing efficiency effects.

Subsidies for sports stadiums typically involve outlays of taxpayer dollars to defray the construction costs. That’s clearly wasteful, because it involves deadweight losses from raising additional tax revenue to pay for the stadium.

But if instead the “subsidy” takes the form of reductions in property tax rates or other taxes for the marginal business, that’s part of tax competition across localities, which is a good thing that helps to keep local tax rates down. Think of it like a supplier offering a discount to gain incremental sales, winning those sales from rivals. That’s not a subsidy but a competitive price reduction. If this is the form of benefit Amazon was offered, there is no strong reason to think it would have spurred NY to raise taxes to inframarginal businesses. Amazon would have been incremental to the tax base.

Cuomo has lamented the flight of high earners from NY to FL, and now he will lament Amazon’s flight. Is there hope that high tax-and-spend states might finally be having an epiphany?

Tyler, what are your thoughts regarding centralized industrial policy versus free market capitalism? Do we play the game like China does where the government has their chosen winners or should government stay out of the way and let everyone compete with the same rulebook? I'm fine with more government involvement with cutting edge research like how China and the EU does it with basic science, AI, pharma research, semiconductors, biotech, etc. but I think for more commoditized, consumer facing stuff like Amazon, not so much.

The real financial comparison for the tax deal was between the taxes that the locale would have yielded otherwise (or will yield now), versus what Amazon would have paid. The "list price" wasn't that relevant, and claims that the entire difference would be given to Amazon were just incorrect. The benefit to Amazon would have been the difference between the actual discounted taxes, and the most they would have been willing to pay -- which was likely less than the list price.

There is also a specific economic definition for a subsidy, which no one seems to have addressed. It involves a discount below marginal cost -- which might be a bit challenging to define here, although NY's high and progressive tax schemes must ordinarily overcollect from Amazon types relative to the public at large and so a discount could still have left their payments more than covering typical civic-related costs.

Interesting no one has mentioned that Amazon's tax break would be used to run other perfectly good, profitable tax-paying companies out of business, thereby draining even more taxes out of government coffers. I'm not sure why any government would do that.

@jim - that logic cannot be true. If it was, every "tax-exempt" organization would drive every tax paying organization out of business.

Of course its true. :). Do JC Penney and Macies and sears get tax breaks? No. Are they going out of business? Yes. Amazon is the king of tax breaks, yet before WF acquisition, its retail op was loss making. So how did it keep going? Raiding profit from AWS, of course, but also tax breaks.

So Sears will be fine now?

They didn’t pay corporate tax this year or last

Perhaps the (renting) residents of Long Island looked at the fate of renters in San Francisco and made a perfectly rational choice?

Oh well. It's New York's loss. Amazon has plenty of other cities desperate for their headquarters.

Amazon, I think, was not interested in the subsidy but in productive people, of the kind that still abounds in New York. The subsidy was useful to convince the accountants and economists that only see figures. The subsidies offer still stands yet Amazon said "No thank you" - and explained why - the hostility of the population and its political leadership. No amount of money is worth settle in Ocasio's neighborhood.
Here we would be happy to welcome and subsidize Amazon to send some of those 150,000 dollars jobs to Israel.

Personally, I think they wanted friendly local government more than the subsidies. AOC's agitation messed that up.

I've seen other businesses get screwed by announcing too-early they want something. Politicians commonly see this as an opportunity to get their cut (e.g., we'll grant this permit only if you use union labor and buy+contribute some other plot of land)

This is preposterous, if they cared about friendly people more than about the money there was an easy solution: share the money. Instead, they act like they actively hate people, so the standing offer was no good as longe as the locals refused full jolly obedience.

Easiest way to look at it is companies whose revenues come from outside the region, benefit the region much more than those that generate local revenue only, unless they replace out of region expenditures.

So, obviously, this deal made sense on some level. The problem is not that NY officials were bribed or acted irrationally out of love for Amazon. It is precisely the opposite which troubles me, namely that there exist conditions which made this perfectly reasonable! How should it be different? Hey, I'm not sure. Would it help if there wasn't incentive competition between states? Or would it only work internationally, obviously unfeasible, and in this context this current model is actually efficient? Sorry for not having ready alternatives, I'm not saying what ultimately happed was "a win", I'm just worried.

Why not just cut taxes for everyone? Politicians are idiots.

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