Amazon HQ2 and Corporate Subsidies

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mattbbpl

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#1 mattbbpl
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Amazon announced their HQ2 decision on Tuesday. They will split the new site up into 2 main sites (the New York and DC metro areas) as the end result of a stunt designed to get taxpayers to bid up the amount they'd pay the company for the privilege of doing business in their areas. This comes on the heels of the increased toxicity of Wisconsin's Foxconn deal.

As the Atlantic points out (Link 2 below), this isn't new.

Each year, local governments spend nearly $100 billion to move headquarters and factories between states.

...

Was this national auction nothing more than a scripted drama to raise the value of the inevitable winning bid? And did the retailer miss an opportunity to revitalize a midwestern city by choosing to enrich the already-rich East Coast?

All good questions. But here’s the big one: Why the hell are U.S. cities spending tens of billions of dollars to steal jobs from one another in the first place?

This practice has reached farcical levels.

Every year, American cities and states spend up to $90 billion in tax breaks and cash grants to urge companies to move among states. That’s more than the federal government spends on housing, education, or infrastructure. And since cities and states can’t print money or run steep deficits, these deals take scarce resources from everything local governments would otherwise pay for, such as schools, roads, police, and prisons.

Or looking at the flip side of the coin (funding rather than spending), tax breaks given to companies must be paid by you.

They also have little otherwise desirable impact.

One recent study by Nathan Jensen, then an economist at George Washington University, found that these incentives “have no discernible impact on firm expansion, measured by job creation.” Companies often decide where they want to go and then find ways to get their dream city, or hometown, to pay them to do what they were going to do anyway. For example, Amazon is a multinational company with large media and advertising divisions. The drama of the past 13 months probably wasn’t crucial to its (probable) decision to expand to New York City, the unambiguous capital of media and advertising.

Some of that is, perhaps, because companies often fail to hold up their end of the bargain.

Second, companies don’t always hold up their end of the deal. Consider the saga of Wisconsin and the Chinese manufacturing giant Foxconn. Several years ago, Wisconsin Governor Scott Walker lured Foxconn with a subsidy plan totaling more than $3 billion. (For the same amount, you could give every household in Wisconsin about $1,700.) Foxconn said it would build a large manufacturing plant that would create about 13,000 jobs near Racine. Now it seems the company is building a much smaller factory with just one quarter of its initial promised investment, and much of the assembly work may be done by robots. Meanwhile, the expected value of Wisconsin’s subsidy has grown to more than $4 billion. Thus a state with declining wages for many public-school teachers could wind up paying more than $500,000 per net new Foxconn job—about 10 times the average salary of a Wisconsin teacher.

Some might argue that all that above is secondary because it's ludicrous to offer taxpayer money to shuffle companies around within the United States anyway.

No story illuminates this absurdity more than the so-called Border War, in which the Kansas and Missouri sides of Kansas City have spent zillions of dollars dragging companies back and forth across state lines, within the same metro area. Several years ago, Kansas lured AMC Entertainment with tens of millions of dollars in incentives. Then Missouri responded by stealing Applebee’s headquarters from Kansas with another incentive package. Back and forth they went, until both states had spent half a billion dollars creating no net new jobs but changing the commutes of 10,000 Kansas City workers who got caught up in an interstate duel.

We need to end this practice.

Link 1

Link 2

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Chutebox

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#2 Chutebox
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So, unless I'm totally missing the point, cities are paying Amazon to build their HQs there?

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#3 deactivated-6068afec1b77d
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This is they did with the new football stadiums. The taxpayers had to pay for those stadiums.

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#4 mattbbpl
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@Chutebox said:

So, unless I'm totally missing the point, cities are paying Amazon to build their HQs there?

Correct. Not JUST Amazon, but they're the most recent high profile example.

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#5 horgen  Moderator  Online
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@mattbbpl said:
@Chutebox said:

So, unless I'm totally missing the point, cities are paying Amazon to build their HQs there?

Correct. Not JUST Amazon, but they're the most recent high profile example.

Technically it's just a tax break, right? Not actually handing out money to Amazon?

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#6 mattbbpl
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@horgen said:
@mattbbpl said:
@Chutebox said:

So, unless I'm totally missing the point, cities are paying Amazon to build their HQs there?

Correct. Not JUST Amazon, but they're the most recent high profile example.

Technically it's just a tax break, right? Not actually handing out money to Amazon?

It depends. Sometimes it's tax breaks, sometimes assets are paid for, and sometimes it involves cash payments, but more to the point, what's the difference?

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#7 horgen  Moderator  Online
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@mattbbpl said:

It depends. Sometimes it's tax breaks, sometimes assets are paid for, and sometimes it involves cash payments, but more to the point, what's the difference?

In case of tax break you never see the money, out of sight, out of mind.

If assets are paid for or straight forward cash payments, it's much easier to compare it to other expenses on the budget. Like comparing it to teachers salaries. How many teachers could you get for this amount of money???

I'm not saying tax breaks are better. They are not, although I guess it is the only option where they have to actually commit to create the jobs promised to make use of the tax break. Unless whoever politician wrote the deal is a complete idiot.

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#8 SUD123456
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Toronto refused to offer subsidies as part of their bid for HQ2. And they tried to get other bidding cities to also not offer subsidies.

So, at least not everyone is insane. As if Amazon needs corporate welfare, ffs.

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#9 HoolaHoopMan
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Do we have studies that definitively say that offering tax subsidies don't pay for themselves? Or, are there diminishing returns based on investment, subsidies, and jobs/growth created? Are they at the city level, state level, or country level?

This is an honest question, as you always hear people claiming that offering subsidies attracts companies, companies then flock to the city/state/country, and then economic growth follows.

I think that deals like the Foxxcon disaster in WI shows an extreme end to huge corporate subsidies, and it's essentially stripping local governments of funding in the process. However, there's got to be a curve I'd gather. Or is this kind of like the Laffer curve where 'Cutting taxes'='Providing Subsidies' & 'Generate Tax Revenue'='Generate Jobs/growth'. Both total hogwash?

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#10  Edited By comp_atkins
Member since 2005 • 38662 Posts

politicians are desperate to point to something and say "see folks, i'm a great leader, look at all the jobs i'm bringing to the city/state"

as mentioned, doing it with a tax gift is a way of hiding the cost.

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#11 deactivated-5f9e3c6a83e51
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What's even worse than that are sports stadiums. Look up the breaks and frills each city gives for pro sports stadiums. Total racket.

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#12 mattbbpl
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@sonicare: Oh, definitely.

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#13  Edited By Jacanuk
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@mattbbpl: So do you have a link to a credible and more in-depth report which weighs the benefits of this kind of job creation compared to the cost of the subsidiary? Because right now it seems you are just jumping on Sanders socialist mindset and not actually looking at the bigger picture.

Also again we are talking free market , so if there is a loss for the state government , it seems to be more a case of bad contracts being made than need to ban all practices like this.

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#14 mattbbpl
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@Jacanuk: links are in the article.

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#15 SUD123456
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@HoolaHoopMan: There are a bazillion studies on this and they are all over the map, depending on how they were done, what is considered success, what time frame, etc. Generally though they aren't great ideas.

One line of thought is that if you aren't an exporter than this is a really bad thing to do. The logic is that you are just giving preferential treatment to firm A over firm B with no net benefit unless there is an increase in total final demand for the combination of A and B.

On the otherhand, if you are subsidizing a sector....like all countries do.... then it could be good.

Or with new product/technology introduction you could lure/subsidize and create a strong first-in base. An example of that would be China and renewables. For instance, Europe automanufacturers are already concerned that they have lost the electric battery market to China and that market is still in infancy.

On the otherhand one mega employer of advanced technical skill sets could drain those skill sets from other companies in the area, significantly affecting overall regional innovation.

So whose benefit? A city, a region, the country...perspective changes the answer. There are many moving parts, but it isn't hard to see why most of these cases are dubious at best and outright disasters at times.

In this particular case of corporate welfare, I would like to know why one of the richest and most powerful companies on earth deserves a dime in incentive?

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#16 mattbbpl
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@SUD123456: You broadened the scope quite a bit there from "subsidies to get/retain firms between US states" to "any and all subsidies." Also a good topic though, and the scope increase was likely inevitable due to how close the two are.

You covered the broader scope admirably for a forum post. It gets complex and situation dependent quickly, and I could nearly feel you reigning yourself in from going too far down that rabbit hole.

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#17 horgen  Moderator  Online
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@SUD123456 said:

Or with new product/technology introduction you could lure/subsidize and create a strong first-in base. An example of that would be China and renewables. For instance, Europe automanufacturers are already concerned that they have lost the electric battery market to China and that market is still in infancy.

They fucking deserved to lose that.

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#18 SUD123456
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@mattbbpl said:

@SUD123456: You broadened the scope quite a bit there from "subsidies to get/retain firms between US states" to "any and all subsidies." Also a good topic though, and the scope increase was likely inevitable due to how close the two are.

You covered the broader scope admirably for a forum post. It gets complex and situation dependent quickly, and I could nearly feel you reigning yourself in from going too far down that rabbit hole.

You are right....I was reigning it in as one could write books on this. Maybe I will when I retire in a few years ?

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#19 SUD123456
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@horgen said:
@SUD123456 said:

Or with new product/technology introduction you could lure/subsidize and create a strong first-in base. An example of that would be China and renewables. For instance, Europe automanufacturers are already concerned that they have lost the electric battery market to China and that market is still in infancy.

They fucking deserved to lose that.

I admit I laughed. I can see your POV given your country's progressive views on that. It must be very disappointing to see your neighbours mess that up.

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#20 mattbbpl
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@horgen said:
@SUD123456 said:

Or with new product/technology introduction you could lure/subsidize and create a strong first-in base. An example of that would be China and renewables. For instance, Europe automanufacturers are already concerned that they have lost the electric battery market to China and that market is still in infancy.

They ****ing deserved to lose that.

Language!

Haha, just kidding. I just wanted to play pretend mod once. Carry on.

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#21 horgen  Moderator  Online
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@SUD123456 said:
@horgen said:
@SUD123456 said:

Or with new product/technology introduction you could lure/subsidize and create a strong first-in base. An example of that would be China and renewables. For instance, Europe automanufacturers are already concerned that they have lost the electric battery market to China and that market is still in infancy.

They fucking deserved to lose that.

I admit I laughed. I can see your POV given your country's progressive views on that. It must be very disappointing to see your neighbours mess that up.

One thing is taking a challenge head on and trying to catch up with Tesla. However several of the bigger companies here have been lobbying for keeping combustion engines. VW used electrical vehicles as talking point to get the focus away from cheating with their emissions on diesel engines. What do they have to show for it? A modified Golf and Up (E-Up). I know why they do not want electrical vehicles to come. Electronics take over for engine control which Asia in general is much better I believe. Also the engine requires much less maintenance. Gear box is simplified to a simple reduction gear. It means less money for them. Loads of people will probably lose their jobs in auto manufacture and service in the coming decade or two.

BMW has imo been acting slightly better. At least BMW i3 seems designed from the ground as an electrical vehicle.

I think except for BMW i3 and Tesla S and X, waiting times are a minimum of 6 months here. Opel Ampera E is not possible to buy anymore due to waiting lists reaching two years.

F**** I forgot. Even Jaguar managed to release a decent electrical vehicle before VW.

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#22 HoolaHoopMan
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@SUD123456: That's kind of what I gathered, it's varied and not all practices of it are bad per say. However, there is a big difference between subsidizing a direct recipient, rather than an industry. Companies like Foxxcon and Amazon don't need subsidies and it seems like providing them is simply anti-competitive to others in their industry. There's no guarantee on our return of investment either, it's corporate welfare.

All I know is that providing subsides to behemoths doesn't pay, and down the line, could potentially worsen situations with consolidation as you pointed out.

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#23  Edited By theone86
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@HoolaHoopMan said:

@SUD123456: That's kind of what I gathered, it's varied and not all practices of it are bad per say. However, there is a big difference between subsidizing a direct recipient, rather than an industry. Companies like Foxxcon and Amazon don't need subsidies and it seems like providing them is simply anti-competitive to others in their industry. There's no guarantee on our return of investment either, it's corporate welfare.

All I know is that providing subsides to behemoths doesn't pay, and down the line, could potentially worsen situations with consolidation as you pointed out.

Foxconn should be a cautionary tale for these sorts of deals. Not only did Wisconsin shell out $3 billion, with a "B", in subsidies, but they also invested a ton more money in building new infrastructure and amenities to support the new plant. And now, get this, Foxconn says it won't be hiring many Wisconsin workers because it needs highly skilled labor and there isn't enough in Wisconsin (please tell me again how education spending is a waste of money?) Oh, and the plant and the necessary infrastructure take up a large quantity of land, meaning less available for housing, and with an influx of new workers demand for housing will go even higher, so it ****s Wisconsinites twice over. Moving over to the HQ2, I was just reading how New York promised land to Amazon that was earmarked for affordable housing. So now, instead of building affordable homes and alleviating an already struggling housing crunch, they're handing the land over to Amazon which will take more space away from the housing market and bring in more workers, driving housing prices up even further. So basically everyone gets ****ed, except for the companies getting a massive government handout while simultaneously getting a nice boost in stock prices, and the politicians who are probably getting some nice, cushy jobs lined up for after they're voted out in disgrace.

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#24  Edited By TryIt
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@theone86 said:
@HoolaHoopMan said:

@SUD123456: That's kind of what I gathered, it's varied and not all practices of it are bad per say. However, there is a big difference between subsidizing a direct recipient, rather than an industry. Companies like Foxxcon and Amazon don't need subsidies and it seems like providing them is simply anti-competitive to others in their industry. There's no guarantee on our return of investment either, it's corporate welfare.

All I know is that providing subsides to behemoths doesn't pay, and down the line, could potentially worsen situations with consolidation as you pointed out.

Foxconn should be a cautionary tale for these sorts of deals. Not only did Wisconsin shell out $3 billion, with a "B", in subsidies, but they also invested a ton more money in building new infrastructure and amenities to support the new plant. And now, get this, Foxconn says it won't be hiring many Wisconsin workers because it needs highly skilled labor and there isn't enough in Wisconsin (please tell me again how education spending is a waste of money?) Oh, and the plant and the necessary infrastructure take up a large quantity of land, meaning less available for housing, and with an influx of new workers demand for housing will go even higher, so it ****s Wisconsinites twice over. Moving over to the HQ2, I was just reading how New York promised land to Amazon that was earmarked for affordable housing. So now, instead of building affordable homes and alleviating an already struggling housing crunch, they're handing the land over to Amazon which will take more space away from the housing market and bring in more workers, driving housing prices up even further. So basically everyone gets ****ed, except for the companies getting a massive government handout while simultaneously getting a nice boost in stock prices, and the politicians who are probably getting some nice, cushy jobs lined up for after they're voted out in disgrace.

and on top of all of that I got this to say

'and internet company in which the vast majority of the employees can work remote and they dont want to do that'?

Tulsa on the other hand seem to get the right idea, they want remote workers to move there because Tulsa strong point is cheap and good quality of life

https://www.koco.com/article/foundation-will-pay-you-10-000-to-move-to-tulsa/25096707

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#25 theone86
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@tryit said:
@theone86 said:
@HoolaHoopMan said:

@SUD123456: That's kind of what I gathered, it's varied and not all practices of it are bad per say. However, there is a big difference between subsidizing a direct recipient, rather than an industry. Companies like Foxxcon and Amazon don't need subsidies and it seems like providing them is simply anti-competitive to others in their industry. There's no guarantee on our return of investment either, it's corporate welfare.

All I know is that providing subsides to behemoths doesn't pay, and down the line, could potentially worsen situations with consolidation as you pointed out.

Foxconn should be a cautionary tale for these sorts of deals. Not only did Wisconsin shell out $3 billion, with a "B", in subsidies, but they also invested a ton more money in building new infrastructure and amenities to support the new plant. And now, get this, Foxconn says it won't be hiring many Wisconsin workers because it needs highly skilled labor and there isn't enough in Wisconsin (please tell me again how education spending is a waste of money?) Oh, and the plant and the necessary infrastructure take up a large quantity of land, meaning less available for housing, and with an influx of new workers demand for housing will go even higher, so it ****s Wisconsinites twice over. Moving over to the HQ2, I was just reading how New York promised land to Amazon that was earmarked for affordable housing. So now, instead of building affordable homes and alleviating an already struggling housing crunch, they're handing the land over to Amazon which will take more space away from the housing market and bring in more workers, driving housing prices up even further. So basically everyone gets ****ed, except for the companies getting a massive government handout while simultaneously getting a nice boost in stock prices, and the politicians who are probably getting some nice, cushy jobs lined up for after they're voted out in disgrace.

and on top of all of that I got this to say

'and internet company in which the vast majority of the employees can work remote and they dont want to do that'?

Tulsa on the other hand seem to get the right idea, they want remote workers to move there because Tulsa strong point is cheap and good quality of life

https://www.koco.com/article/foundation-will-pay-you-10-000-to-move-to-tulsa/25096707

Mmmmmmhmmmm!