Be reasonable. That's an absolutely ridiculous counterpoint, and a perfectly reasonable answer is "assign it zero" since no city was compelled to apply. Should we dispense with competitive processes completely? Why have the Olympics, for instance, because it's such a waste of time for everyone that doesn't medal?
Further, the Scott Walker/Foxxcon debacle is a completely different category than the HQ2 situation. However, it is not going to be productive discussing the reasons that an ostensibly large manufacturing site was situated in an electoral battleground state with substantial involvement at a federal/executive level.
I think this could be argued. The thing about democratically elected politicians is that while you can't "force" them to do something, there can be enough political pressure to effectively compel them to do something. In this case, any city that passed on this opportunity would have to describe to their constituents why they didn't want to bring 50,000 high-paying jobs to their city. It's much easier to just play ball, hence over 238 submissions.
> Should we dispense with competitive processes completely? Why have the Olympics, for instance, because it's such a waste of time for everyone that doesn't medal?
Do the Olympics change the rules in the middle of a competition like Amazon did?
> the Scott Walker/Foxxcon debacle is a completely different category than the HQ2 situation.
It is different in many ways, but also similar in a number of ways. Specifically, both used the promise of X number of jobs to extract a set of concessions, then proceeded to chop that jobs number in half.
>any city that passed on this opportunity would have to describe to their constituents
So, democracy in action? Constituency wants something, and politicans have to obey? Or do you prefer politicans to decide by themselves and not having to explain their decisions back to their constinuents?
-- H.L. Mencken
You have a point that the Olympics analogy isn't great. One other flaw is that cities aren't contractually bound to deliver the promised incentives, either. Olympic athletes can't change their performance after the fact.
I find myself in an uncomfortable situation, where I'm defending Amazon (who I have no relationship with aside from being a customer) and not even liking the HQ2 selection process, even a little. But it's just hardball negotiation that was conducted a bit more publicly than countless other site selection processes for countless other companies.
When we're talking about pitting strapped local governments against each other in corporate welfare bidding wars, the answer is, absolutely, unequivocally, yes.
What was asked, and what I answered, was how to account for the time of municipalities that answered the RFP. Since they do not have to actually offer any of the proposed subsidies since they lost, then I think it's fair to assign no value to the cost. If you disagree, please feel free to tell me what price they paid instead of downvoting.
-https://www.consulting.us/news/290/consulting-firms-recruite...
-https://technical.ly/philly/2017/09/13/site-selection-consul...
This is not to mention that cities likely had to hand over demographic data that would've otherwise been very expensive to collect: https://www.businessinsider.com/amazon-hq2-search-data-2018-....
Look at some of the cities that made the finalist list:
-Columbus (population ~880k)
-Denver (population ~700k)
-Indianapolis (population ~870k)
-Nashville (population ~667k)
-Newark (population ~285k)
For these cities, an additional 25k jobs would have been huge. Scott Galloway has advanced the theory that a large goal of the HQ2 search was to secure competing bids, which Amazon then took back to NYC and DC in an attempt to secure better terms. If these "finalist" cities were simply used as stalking horses with ~0% chances of actually winning, I can't help but feel it was a little wrong to induce them to spend the necessary fees on consultants and planners to put together a decent bid.
I do the same thing Amazon does all the time, to get the best price. I don’t need to be honest and tell the seller I’m using them to get someone else’s price down. Maybe I do go with the new seller if their price is good, maybe it’s not good enough to sway me from the other seller. It’s just business.
I certainly wouldn't base my calculations on it
The unfortunate fact is that the politicians who emptied their pockets are to blame. But they too are only doing what they believe both benefits their constituents and of course helps them stay in office. To put it another way, if the mayor of Pittsburgh said "we aren't going to play ball and give a handout to one of the largest companies on earth" people who live there probably would have revolted. I don't think there's a good solution except for voters to become smarter about how their budgets are spent and make clear to politicians they don't want tax dollars wasted courting a company that doesn't need any government assistance.
You need way more than $6,100 per employee per year to reach break-even, as those employees will have definite costs to the city in the form of expenditures on services.
Strict cost accounting isn't really the right framework to use because cities have many people who cost more in services than they earn in tax revenues. You can't get rid of them because they're "unprofitable", and it isn't a city's job to turn a profit.
will they not rent and buy sandwiches from the area? Or pay the NY state /NYC income tax? Or sales tax on a lot of stuff they buy /spend? NY comes way out ahead, IMO, over 10 years. Amazon pays $100+k salaries for such staff
Maintaining infrastructure and services for residents of a city costs money. Adding ~25,000 residents will absolutely increase these expenses. The additional tax revenue will almost certainly more than cover it. But let's not pretend that tax revenue is "free".
It's taxes, paid by residents, and patrons to businesses... it's not like the people moving in will just take, and not pay any taxes at all.
Oh, in NY and similar cities surely it is not free: you pay a substantial state tax AND a city tax. Not to mention a fat sales tax and fees on roads and bridges. But if you rent in X neighborhood and live there you generally paid your dues on services.
Let's not forget that people (especially AMZN /GOOG / FB employees) also pay fed taxes, that trickle down to states for infrastructure etc etc. Not crying about NY state fat cats wanting $500K pension after "working" for the state.
I.e. for every $1 that NY sends to the federal government in federal taxes, it receives something like ~$0.80 in spending: https://www.osc.state.ny.us/press/releases/oct17/100317.htm. Most of the money that NY receives is for Medicaid and other entitlements.
NY receives every year a total of $165 per capita for transit, slightly less than the national average of $168. When considering the cost of labor and materials in NY, that gap is probably much larger in real purchasing terms.
On the other hand, NY state directly spends $639.2 per capita on transportation annually: https://www.usgovernmentspending.com/year_spending_2019NYdn_.... The actual cost of the "pensions" you deride is $1085.2 per capita per year to the state. If you look at total state and local spending, the total costs of pensions are $1758 per capita per year, and transportation is $1788.8 per year. Neither reaches 10% of total statewide spending.
This doesn't directly negate your point about federal money trickling down, but NY is not receiving very meaningful assistance from the federal government.
That person is buying a condo, eating at NY restaurants, paying local state and payroll taxes, dry cleaning at local stores, buying clothes locally, etc etc etc. We know that people at that age virtually spend all their money...so what if AMZN got an x% discount on volume? What more do you want?
But I think you may have missed my point: there are expenses for city residents. A non-zero percentage of these new residents' tax revenues will be spent on the residents themselves.
Yes they will easily generate more than $6,100 in revenue per year for the city from income tax alone (6.65% is the NYC current tax rate in the $79,000 - $215,000 income bracket. This would bring in $7,248.50 a year based on the average of $109K income from income tax alone. Yes these employees will buy lunch everyday, they will buy TVs and iPads and bed sheets and alcohol and stuff. They will pay 8.85% sales tax on all these goods (only 4.5% of which goes to the city). If we assume they spend 50% of their income on sales taxable goods then they would pay another $9,646.50 a year in sales tax.
So the question is how much on average does one citizen cost the city (the burden cost). As long as it is less than $16,895 (the sum of both previous figures) than things should be ok.
The city also monetizes its' citizens through other means such as traffic tickets, property tax, state lottery sales, cigarettes, alcohol purchases, etc. So this $16K number is a low-ball figure.
I am inclined to believe that the burden cost of a citizen is well below $10k a year. For easy math if we assume that a citizen does cost the city $10k per year, and the tax subsidies do cost $6,100 per year then that means the overall burden cost is $16,100 which would be the break-even point for an amazon employee. Money the city can earn on that employee above that figure would generate a net-benefit for the city. Anything below that figure would be a net-determinate to the city.
First, I think you are confusing the New York STATE tax rate with the New York CITY tax rate. The 6.65% you quote is the rate for the state. The city tax rate is significantly lower.
Second, you are making the classic error of applying a marginal tax rate to the entire income, rather than just the portion within the brackets. Income lower than the bracket is assessed at a lower rate, so the effective rate on the total is less.
Anyway, when I plug the $109,000 salary into a calculator here https://smartasset.com/taxes/new-york-tax-calculator and use a Brooklyn zip 11238, it shows a "Local" tax of $3560. I'm not how it affects your overall argument, but I don't think it's true that "they will easily generate more than $6,100 in revenue per year for the city from income tax alone".
Its the same at county level to.
Here's some stats: https://ballotpedia.org/Analysis_of_spending_in_America%27s_...
NYC spends $8,690 per year per capita, and NY spends an additional $6,804 on top of that. So we're looking at $15.5k spent per year on the average citizen across the state and city. Thus your break-even is actually around $22k in state/local tax revenue per Amazon employee. And in order to reach that, your average single filer Amazon employee will need an income of $230k according to this calculator: https://smartasset.com/taxes/new-york-tax-calculator#UDJIdPT...
Note: I haven't taken property or sales tax into account here; feel free to make reasonable assumptions and do your own math. This will bring the $230k figure down.
Yeah, because none of those employees will pay property, income, sales or other taxes locally...
I don't really think of a company like Amazon needing a competitive advantage.
What if, instead of giving $1,500,000,000 to Amazon, NYC gave out $60,000 subsidies to some 25,000 (!!!) local small businesses?
If they make 1 new minimum wage job each, it would actually cost the city way more.
More to the point, though, the goal of the city isn't to maximize its revenue — it's to make its citizens lives better. A minimum wage job for a poor current resident might be better the community than high-paying job for an imported knowledge worker, even if the latter means more money for the city.
If you believe the latter I don't know what to tell you. Move to Detroit? The idea that less tax revenue is somehow good for funding social programs seems insane to me. Not sure how you're going to begin to justify that.
Like a catalyst.
I don't know if it would be better than this Amazon stuff or not, but it feels healthier.
It would certainly be democratic to give the money back to the citizens, permitting each to spend it as he will; then each would get a vote on what he thinks the best expenditure is.
It would be perfectly legitimate for federal rules restricting ruinous competitions such as these. There are, in fact, many examples: Minimum wage, or the workplace safety and wage restrictions in trade deals like NAFTA, or very explicit rules against certain subsidies.
Sane jurisdictions that consider the possibility that cooperation may, in very rare and limited circumstances, not the end of humanity are much stricter: the EU limits subsidies to temporary measures only, and also puts limits on bespoke tax deals with individual companies.
Who or what do you think has been ruined by this competition?
disastrous or destructive: a ruinous effect on the environment. • costing far more than can be afforded: the cost of their ransom might be ruinous.
I think it's pretty obvious what's being destroyed: the ability of local jurisdiction to collect tax revenue from large cooperations. Without this little beauty pageant of ugly capitalism, Amazon would still hire the same number of new employees, possibly even in the same locations. Only difference is that a billion $ could be invested in public goods, instead of going Amazon shareholders'.
And it's not a zero-sum game. Perhaps a better proposition from a city makes a more productive Amazon? We're talking about efficient transport and things here, after all.
Your approach is let everyone make things equally as bad and let Amazon pick any of the worst. Amazon's approach is 'what can cities do to help us maximise both our success and yours?'
I think it's positive and constructive.
Repeat a few hundred times in cities around the country and huge sums are being handed over to corporations needlessly.
What discount rate are you using? My quick calculation is already pretty generous to Amazon, since they already get 10 years to generate the 25k jobs. Presumably, some portion of the $1.525 billion is available immediately for campus improvements etc. It's not worthwhile to project 24 years out, especially when considering the time value of money.
> And it's not just salaries that would generate this revenue, it's also property taxes and taxes on services providing for the HQ and employees.
Yes, I mentioned that increased consumption is likely taxable. The question again is whether this consumption would've happened anyway, by other companies, or by Amazon's future employees working at other companies.
> Increased rents and property prices are actually good for local government tax revenue.
Would you be in favor of widespread gentrification? It's not hard in an accounting sense to "optimize" the local tax revenue generated in New York. Just make it a city where cost of living is so high that only the wealthiest can afford to live there. In a city where affordable housing is already in very short supply, and homelessness is still a major problem, I'm not sure how "good" it is for the city to have to spend more on rent assistance.
The "effective property tax rate" in New York is ~0.8% (https://smartasset.com/taxes/new-york-property-tax-calculato...). To generate an additional $1k in property tax, the price of a property would have to increase $125k. Maybe good for the city, certainly not good for the middle-class and poor New Yorkers who have to contend with higher rents and cost of living.
EDIT: Not to mention that it's hard to see how increased rents lead to more revenue for the city. The state may be able to bring in more corporate tax income, but a more valuable property means that property owners can also claim more in depreciation etc.
Higher rent means higher property valuation, which means increased property taxes. In Manhattan (and other places like Florida), there is also a tax on all commercial rents that would grow. I don't think Long Island has one though, so just the property tax growth.
Regarding gentrification, Economist has a great article on the unsung benefits and highlights some studies showing displacement is not as widely perceived. People's opinion changes when you call it "revitalization", "redevelopment", or even just "development".
https://www.economist.com/united-states/2018/06/21/in-praise...
Considering the two areas, it seems likely they would open additional positions there regardless of whether the areas "won" the HQ2 battle, much like they're doing in Boston (and probably other places as well).
This makes tax incentives even less worthwhile.
I think it's only fair to factor in the various positive externalities. Some of those abatements you mention are for development of the spaces they are occupying, which Amazon has committed to do in the billions. Growth pains almost always exist. In places receiving large amounts of migrants (seriously, Amazon is small number compared to the influx of out-of-state employers moving to other regions) they will experience unquantifiable negatives, but we should not let this detract from the similar unquantifiable positives of economic mobility.
The math is more complicated than any of us understand.
If you're big enough to "break the rules", arguably you're a monopoly or close enough to this to merit great suspicion and corresponding oversight.
Moreover, the $109k is likely just base salary — there is probably additional stock and cash bonuses on top of that. Note that NY does not have a lower tax on capital gains or dividends (like the federal tax code), so they’ll be taxed like regular income. The $109k is also likely an outdated or incorrect number, as that’s too low a base salary for a Software Engieer in NYC — I expect the average SWE base at Amazon to be something closer to $130k.
Besides, I don’t think a business development tax break is unfair as long as it is being granted to all companies (and not just Amazon). That’s what people should be fighting for. In addition, a large chunk of the incentives are state tax credits (I assume non-refundable ones). This means the state is simply going to revive reduced additional revenue because Amazon is moving in — they don’t per de lose money (unless whatever business was going to be built in Amazon’s place would have not have gotten these tax breaks). The way this is being portrayed — it sounds like it’s a literal giveaway to Amazon, which I’m not sure it is (it would be, if it largely consisted of refundable tax credits and state capital grants).
Let's say Boeing decides to move their HQ from Seattle. Should a city like, say, Chicago, offer incentives to land the new HQ? What is the economic loss to Seattle? What is the economic gain to Chicago?
Why should Boeing or Amazon get off from paying taxes, but Bob's Sandwich Shop doesn't? One obvious answer: Bob's Shop doesn't really matter. But what if, say, McDonalds threatens to pull out of Chicago unless they get the same deal as Boeing? Does McDonalds matter? Do they employ enough people? Are they hard enough to replace? How about Walmart?
It intrigues me that municipal bidding has not spread to be leveraged by more corporations. I mean more blatantly leveraged. I mean like Boeing/Amazon-level blatant. Imagine if Carrier turned the tables on Trump. Publicly.
If Chevron threatened to pull all its stations from a city, would any city care? Is there enough competition to fill in the hole?
What do you call a corporation that exists in a space without enough competition to fill in the hole? Should you treat such companies differently? Should you let them not pay taxes? Should you impose monopoly regulation on them? Should you handcuff them? Or roll out the red carpet?
Should you punish any corporation that achieves this status? Or should should encourage the innovations that allow such creations?
McDo upgraded to shiny new HQ in Chicago this year, reportedly with no tax incentives [2]
[1]: https://www.nytimes.com/2001/05/11/business/chicago-offering...
[2]: https://www.dailyherald.com/article/20160613/business/160619...
None of this bargaining should be legal.
So every dollar spent is a dollar lost for the US.
From the article, it looks like the city may actually pay up to $500 million in a "capital grant", but I'm not sure what form the rest of the subsidies are in.
That said, the article uses wording like "Ohio taxpayers sued the state after it paid the automaker DaimlerChrysler about $280 million in tax exemptions and tax credits" so my perspective might be wrong here. It just feels misleading to use the verb "paid" on tax credits to me. Like, if I bought a Tesla, and got the $7,500 tax credit, I wouldn't feel exactly like the government paid me anything. Sure it cost the government that much, in some sense, since I would have paid the government those taxes had I not been given the break, but that doesn't really apply to the Amazon case since they wouldn't have paid those taxes anyway, since they wouldn't be in that state.
The problem is the prisoner's dilemma of the situation, forcing jurisdiction into a race-to-the-bottom competition.
That's because Amazon would hire these people anyway. NY and DC may come out ahead. But for the country overall, it's purely a transfer for billions from taxpayers to Amazon stockholders.
Those low tax states are net recipients of $ from states like NY and CA - of course that would mean major changes in the constituation :-)
Here, it would be enough to stop these bespoke, one-company deals. Because no state could afford giving such rates to all companies, the practice would end.
That's exactly what has happened with most offshore tax haven over the last decade or so, btw.
Just on income tax alone that covers the $6k and that's not considering side effect impacts I have on city income in the form of paying my rent and paying local businesses which generates even more tax income.
Now of course this is all dependent on the fact that I wouldn't be generating any money for the city if it wasn't for Amazon which isn't true. I'd still have a job, it just might not pay quite as well as working for Amazon, but I'd still be contributing income tax.
Overall though from what I can tell NYC is getting a good deal and will end up with more money despite the tax breaks.
Virginia has lower rates, but they still ought to make out.
From NYC's perspective, many of these probably will be new jobs, because many knowledge workers who wouldn't otherwise will move to NYC because of an Amazon job.
Further, $109k/yr/employee is way too low for NYC Amazon engineers; this is likely ignoring the equity grant which is taxed as ordinary income. The average will skew much higher. It seems that each new employee will very easily generate over $6100/year in state+local tax revenue.
Further there are synergies and network effects from NYC having more tech jobs and these nth-order effects will also generate tax revenue.
You can argue that this charade wasn't good for America, but it certainly was good for NYC.
In order to calculate a breakeven you need to determine the marginal increase in government expenditures created by a new city resident, which is obviously nonzero.
The construction jobs come from building out the space and necessary infrastructure upgrades are paid positions that often are contract. They aren't permanent but they count for additional tax revenue. As is the revenue of the jobs created by the spending from the additional HQ2 positions (25k jobs requires X new lunch locations, Y new fitness trainers, etc). That is the halo effect.
But do we think the jobs that the new Amazon hires are vacating will go away? Seems probable that many of them will be backfilled, and potentially at a higher compensation rate than they were before, since there'll be more demand for software engineers in the market after Amazon has moved in.
But if those other companies then have to fill the vacuum by hiring even more, then it's still a + per job; and arguably more because increased liquidity in the job market results in more competitive salaries.
No, but they might otherwise have been employed somewhere else, like SF. It's a zero-sum game, which is part of the reason why this whole bidding for corporate headquarters business is silly from a national perspective.
The answer is probably not. Most state income taxes are pretty low and property taxes aren't much better for the city/county level kickbacks.
NYC also has a Gross metropolitan product 3.5x the bay area. I think Silicon Valley would like to be the NYC of the west.
At this point, based on the cities chosen, it seems more like Amazon held these 2 obvious choice cities hostage by threatening to move to smaller, less established city instead. "Give us all your subsidies, or we'll just go build in Baltimore"
From a purely fiscal point of view, do we expect these jobs to generate $6100 a year in additional tax revenue for the state and city? That would be the "breakeven point". This could come in the form of additional state and city income taxes, consumption that is taxed, etc. Payscale says the average Amazon software engineer makes around $109k (https://www.payscale.com/research/US/Employer=Amazon.com_Inc...).
If we believed that Amazon is actually creating 25,000 NEW jobs, as well as jobs that otherwise would not exist, it seems pretty reasonable to say that the state and city come out ahead net-net. However, I have trouble believing that the "knowledge workers" who will join Amazon would otherwise have been unemployed and underpaid. Factor in the various negative externalities of increased commercial and residential rents for others, potential traffic/congestion issues etc., and it seems like Amazon got a sweetheart deal.