Amazon announced last week the 20 cities that it had selected as finalists for the location of its second US headquarters. They were selected from 238 cities that had applied. In addition to claiming to meet Amazon’s criteria such as proximity to an international airport and a population of more than 1,000,000 people, the cities all had one thing in common: their generous overtures to Amazon that came in the way of state and municipal tax cuts.
To lure Amazon, cities and states have paired official outreach with juicy tax perks. Newark, New Jersey is a prime example of public outreach paired with over-the-top tax inducements. The Mayor of Newark, Ras J. Baraka, stated in a televised interview that “Newark is an opportunity to make a real statement, about what they’re [Amazon] trying to accomplish in the United States in the age of Trump.” In exchange for putting its headquarters in Newark, city officials offered Amazon property tax reductions and a payroll tax break total $2 billion. State officials, led by governor Chris Christie, offered $5 billion in tax breaks if Amazon creates 30,000 jobs and makes $3 billion in capital expenditures over a ten-year period. All in, Amazon would receive $7 billion in tax breaks if it were move to Newark, NJ.
Even without government complicity, Amazon has already created tax breaks of its own. Right now, Amazon is holding $26 billion of profit that was primarily earned in the US in foreign tax-friendly accounts. Amazon is unwilling to repatriate those earnings lest it pay the US corporate income tax of 35%. Were Amazon to abide by the intent of US tax laws and repatriate its earnings, it would incur a tax bill of roughly $9.1 billion. This $9.1 billion represents forgone federal funding that could be spent in areas that are in dire need of money: infrastructure projects, public health projects, and social welfare programs. For scale, the American Road and Transportation Builders Association estimates that a two-lane road in an urban area costs between $3 and $5 million per mile. Conservatively, the US could build or replace 8,600 miles of road with this amount of forgone money. Rather than hold their noses and allow Amazon to develop in their jurisdictions, cities and states are instead publicly bribing the company, not paying any mind to Amazon’s ongoing embezzlement of the public via tax evasion.
The tax revenues that cities and states earn fund things like new roads, disease prevention, and disaster recovery – things that nearly everybody benefits from. By asking Amazon to invest in them, cities and states are de-prioritizing these projects. In a typical investment scenario, both sides of the deal are expected to benefit: A bank makes an auto-loan and earns interest on the loan and the car-buyer receives the necessary capital to purchase way to get around. When Amazon invests in a location, it is the only beneficiary. Dividing Amazon’s tax breaks by the number of employees it plans to put in its new location illustrates this point. Amazon expects to add up to 50,000 new employees at its new headquarters. As an example, using New Jersey’s proposed tax breaks of $7 billion amounts to a $140,000 per employee tax break for Amazon. Cities are effectively willing to pay Amazon to relocate. When cities and states announce that they are willing to forgo tax revenues that would ordinarily result from Amazon building within their borders, they are openly admitting that the public’s needs are no longer their top priority. Because this luring is now in the open, a new precedent is being set wherein cities and states publicly grovel to disburse corporate welfare.
Elected officials’ thus far unrequited love for Amazon is understandable. After all, American’s crave more jobs. Gallup’s January 2016 Election Benchmark survey found that 80% of Republican voters and 88% of Democratic voters found the issue of ‘employment and jobs’ to be ‘very important’. For perspective, ‘jobs and employment’ was the third most important issue for voters behind terrorism and the economy. The wooing of Amazon showcases America’s obsession with adding new jobs despite not fully knowing the economic consequences of providing these massive tax breaks. Amazon, in spotlighting the competition for its new headquarters, has created a public race-to-the-bottom where state and city governments compete to offer the most lucrative tax incentives.
America has reached the point where diminishing social safety nets and a fear of another recession has caused elected leaders to subordinate their electorate’s wellbeing to that of capital’s at nearly any expense. But jobs created by the means outlined above do far more for the company that they do for the people and government. Amazon needs to add a headquarters, if it does not, its growth will be hampered, and it will lose market share. Therefore, any city in Amazon’s finalist list could and should host them for in exchange for nothing at all. Amazon is leveraging the fact that jobs – regardless of how they are generated – continue to be seen as a political panacea: healthy employment numbers are something people across all sides of the political spectrum can at least reach a base level of agreement upon. With that agreement in mind, elected officials look to capital to provide what is only ostensibly growth, no matter how uneven the terms may be. Amazon, by publicizing its search, has utilized this imbalance to make government pandering explicit. Now that the love affair is out in the open, the race to the bottom amongst cities and states to provide incentives to firms will be even more breakneck.