We are already a month into the process, so nearly everyone alive is aware that the world’s largest online retailer, Amazon.com has decided
to expand their
administrative operations beyond Seattle, to another metropolitan area.
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| Green = states where government is too big. |
In a stroke of public relations genius, and setting the
stage for a battle that would put Thunderdome to shame, cities across the
country are very publicly competing for the prospect of being home to HQ2, and
laying out the reddest of carpets. The advertised potential benefit to the
welcoming city would be huge: $5 billion in investment, and 50,000 jobs, which
would likely average in the low six figures.
Jeff Bezos was, as recently as four years ago, suspected by
his soon-to-be employees at the Washington Post of being - gasp!
– libertarian-leaning.
But if the efforts of Amazon to secure preferential taxation and infrastructure
treatment are any indication, Bezos is far from leaning libertarian. His
company has made it clear that the contest, while having some prescribed
qualifying criteria, would come down to which municipality lays out the most incentives
for them to set up shop there. And the early returns are mind-boggling.
While some may say that in the current U.S. environment of extremely
high corporate taxation, this kind of overture makes sense, the other side
of the coin suggests that any city willing to cave to such demands may already be
precariously balanced economically. However, what they are really saying by
offering up corporate tax incentives and bought and paid-for infrastructure
improvements for whatever Amazon may desire is that it is okay to socialize the
costs of corporate expansion, even to the most flush of businesses. This is a
company that closed the prior year with $3.4 billion cash on hand.
Even the most blue of progressive states has jumped on the
bandwagon here, with Massachusetts offering multiple proposals that would site
Amazon HQ2 in any one of over a dozen locations across the state. And while
Massachusetts can offer some of the nation’s best public schools, highest
ranked post-secondary engineering programs, and a wealth of ready-to-order
talent in Amazon’s field, that just isn’t quite enough. The state has laid out just
under four hundred million dollars of tax and infrastructure incentives that
Amazon would have access to that are already codified by existing legislation.
Let’s take the most optimistic approach and say that Amazon
deserves every penny that Massachusetts is offering it. What this does is take
the incentivized economic growth capacity of the state and direct it all to one
company, to the exclusion of all other potential prospects, and a company that
most certainly can afford to chip in a bit on its own. This limits competition
in the state by offering preferential treatment to an employer of enormous
scale.
But let’s take a more critical approach and look at where
that money is coming from. Should Amazon get even one penny of incentives, what
this means is that Massachusetts is content to let the existing companies and
residents of Massachusetts finance Amazon’s expansion. After all, they will
continue to pay what they have paid all along, and Amazon will get a break of
some kind that is financed by the efforts of others. Massachusetts has had a
sordid recent history of playing
fast and loose with tax breaks to land another prime employer. At some
point all of the other companies in
the Bay State are going to have to start wondering why they have to pay for
these corporate behemoths to break ground.
Beyond those other companies though, the general population
will also be paying the price to move jobs here that they may not even have a
shot at. Gov. Charlie Baker’s proposal
outlines all of the educational institutions that will provide a pipeline of
talent for Amazon in MA. One can only wonder though, with hundreds of millions
of dollars being sunk into Amazon’s expansion, how much of that burden will
each of the state’s 6.8 million residents have to bear while supporting their
own families?
Back to the ‘why’ though. Seattle is one of the nation’s
brightest hubs of technology, and Amazon is the primary impetus behind that
(don’t let anyone tell you it was Microsoft). One only needs to look back just
a few short years to see why Amazon might be looking to hedge its bets against
calling Seattle home for the foreseeable future.
Fellow Washington corporate anchor Boeing was able to
extract some record
concessions from Gov. Jay Inslee, who was petrified that one of the state’s
few organized labor stalwarts would pull up stakes completely. The state
woefully underestimated the tax impacts of that package, and gave up hundreds of
millions more than they expected. Despite progressive protestations to the
contrary, companies do spend more when they are taxed less, and Boeing saw this
as an opportunity to investment more in their business rather than forfeit it
in taxation down the road. And thus the precedent was set.
At the time, the threat was that Boeing, who had already
started to spread
its footprint across the country, would expand operations elsewhere and
whittle away at its remaining Washington presence. Which is just what Amazon is
now doing. They are leveraging states against one another to compete for their HQ2
now. In a matter of a few years, when HQ2 is up and running at full capacity, one
could easily foresee them performing the exact same request-for-proposal from
another city – this time to wrangle Boeing-like dispensations from the city of
Seattle and Gov. Inslee’s unfortunate successor.
The end result of this will only push more of the tax burden
onto smaller corporations and individual taxpayers unless these tax breaks are
accompanied by significant spending cuts. However, since nearly every aspect these
incentive packages include infrastructure commitments as well, it is unlikely
that will ever happen.
The truth is, these states have simply too much government,
and thus too much money. They are constantly crying poor, and extracting more
and more from their citizens both corporate and private. Yet they can afford to
offer these breaks all the same. Every eligible state applied for an HQ2
opportunity, with the sole exception being an Arkansas that knew better than to
antagonize Wal-mart. Even Alaska took
a shot, for crying out loud (imagine that recruitment campaign).
But perhaps Bezos deep down is a libertarian, and maybe – just maybe – this was all a
deliberate ruse on his part to show just how craven these supposedly
cash-starved state governments really are. Maybe his intent was to show taxpayers
that they live in a state where government is too big, and end the end of the
process he’ll say “we had already decided on a site, we just wanted to show you
how much money your elected officials are happy to waste” and pick a city that
was already functioning in the most business-friendly, cost-effective fashion.
After all, shouldn’t the intent to be rewarding the good
behavior, and not encouraging the bad?
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