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.
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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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