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Chicago Offers Amazon the Ultimate Sweetheart Deal
Cities across North America are bidding to have Amazon locate its secondary headquarters in their area. A lot of localities are offering Amazon incentives and deals that would make the NFL blush. New Jersey is offering a straight-up bribe of $10,000 for each job Amazon would create. Boston is offering to put city-paid employees directly to work for Amazon. But Chicago’s audacity really stands out. The Windy City is proposing that all the income taxes collected from Amazon’s employees will be kicked back to … Amazon:
Chicago and the state authorities of Illinois have jointly offered to hand Amazon more than $2bn in tax breaks, including $1.32bn of its workers’ income taxes. The scheme, known as a personal income tax diversion, would mean Amazon workers pay full income taxes, but instead of the state getting the money to use for schools, roads and other public services, Amazon would keep it.
The theory, I guess, is that the 50,000 subsidized Amazon jobs would lead to economic growth as its well-paid tech workers purchase goods and services from local business; which sounds a heckuva lot like those “Trickle Down Economics” that Democrats always say don’t work.
If Chicago were to be true to its Democratic-Socialist principles it would tell Amazon, “Tell you what, you locate here, and we will tax the heck out of your revenues, micromanage your hiring to meet diversity quotas (and provide some no-show jobs to politically connected family members), regulate you at every turn, and you will smile and say ‘Thank you for allowing us to do business,’ you filthy capitalist running dogs. Also, we expect kickbacks.”
Because that’s how they treat every other business.
It’s really beyond the comprehension of politicians that what they really need to create a good business environment is to provide good, basic municipal services (police, fire, waste management) and a reasonable tax burden.
They don’t understand that concept, but they understand bribes.
Published in Economics
I just sent this to my son, who has been holding out hope for Pittsburgh. I told him it would be Austin or Atlanta, but you are right, Texas is the bigger prize.
I’ll have to investigate what Pittsburgh is offering as a bribe.
Pittsburgh lost US Air to Philly in a heartbreaker, but landed Google. Could lightning strike again? Maybe not and maybe we would be fortunate if it does not.
I love Manchester, New Hamphire’s, proposal which takes digs at Boston’s. Things like how Boston commutes are so bad that it takes less time to get from an inner Boston suburb to Manchester than to Boston.
The Boston Globe characterized it as saying “we’re not a dystopian nightmare city, but we’re conveniently close to one!“
I think this link may show what will occur, as the cities try to outbid each other.
http://reason.com/reasontv/2017/11/03/desperate-mayors-compete-for-amazon-hq2
Click the link, the video is very funny.
And there also this story.
https://www.theonion.com/confident-philadelphia-officials-preemptively-raze-cent-1820509855
One of the bad things about property tax abatements is that it removes influential businesses from the fight for a good business environment for all. Not only do the less influential businesses have to carry the burden of the well-connected ones, but the well-connected ones have no reason to get involved in the fight for a lower overall tax burden.
Does anybody know of any counter-examples? Does Boeing get involved in any reform movements to lower state and local taxes?
I’m all in favor of a crazy patchwork of state and local regulation, but this issue is one on which I sometimes wish we would violate principles of federalism. Maybe rather than outlaw these special tax abatements, though, it would be better for the federal government to tax them, requiring the crony-businesses to report the value of any specially-negotiated abatements as taxable income and disallow any deductions against that income.
This episode is just another example of how much work the liberty movement has to do before we can even begin to decrease dependency on the state. The fact that a business decision would be made based on how much loot the company can extract from the people is sad in and of itself. Worse still is that some of those offering the people’s confiscated property as the loot are called “Conservative.” The governor of Texas should be telling Amazon “you can come here, but we ain’t gonna give you anything for your decision to come.”
I always wondered why Boeing would relocate its corporate offices from a state with no income tax to one with very high income and property taxes. Its employees there have dramatically increased their tax burden by choice. I guess that’s another indication of how dysfunctional their management is, following the merger with McDonnell-Douglas (located in high-tax California).
Wait – I’m bothered by the principle underlying the Chicago idea. A government taxing authority uses its power to tax to extract money from taxpayer (here employee of Amazon) and transfer that money to a private entity, and not use the money for the “public” purposes that justify the taxing authority’s taxation power.
So, could taxing authority take taxes from employees of Boeing and transfer (“divert”) that money to Amazon? Could taxing authority take taxes from people named “Joseph” and transfer (“divert”) that money to an individual named Richard Daley?
Might the taxpayer initiate a court fight to force the taxing authority to stop the diversion on the grounds that it is an abuse of the fundamental purpose of the taxing power, and thus an unlawful taking of the taxpayer’s money? Or is it just a political argument about it being a stupid idea?
I had to read that twice because I couldn’t believe what I was reading. The audacity of these tax collectors is striking, to say the least. Clearly, they don’t need the money in the first place!
Just a small quibble here: Smart cities don’t just compete for giant Amazon-level businesses. They also compete for smaller, stable, long-running companies when they’re looking to relocate.
My family had a factory going back to the early 1900s. In recent years, the city government of my town got less and less friendly to “dirty” manufacturing type businesses in favour of “clean” high tech and/or more government jobs. Plus, the factory was really getting old. They’d upgraded plenty of times over the century, but it was finally time for a complete rebuild.
So, they put out feelers to other towns. There were plenty of small cities eager to get those jobs, especially since my town seemed eager to rid itself of ’em.
One small city sent buses to the factory to drive the employees on a day trip around their city to show how great it is, how cheap the housing is, how nice the schools are, etc. etc. Since many (most?) of the workers were first-generation immigrants paying a fortune in rent, this tour really got them excited about moving.
Anyhoo, my point is, it’s not just the Amazons of the world who get wooed by smart cities (although the incentives being offered to Amazon do indeed seem pretty outrageous).
Nice theory, but as the rest of America already knows, Amazon’s business model depends on workers purchasing goods and services from… amazon.com.
James PethoK would have some dumb charts explaining why this is all OK. It’s not OK.
Is this a known phenomena, where people become lefties after working for Amazon? I’ve heard anecdotal evidence of people moving left after working for government (especially in education), but I hadn’t heard that about Amazon. Do they play NPR over the speakers in their facilities?
Here is what is going to happen:
Seawriter
They should really sweeten the pot and offer to divert the income taxes from other companies’ employees to Amazon.
I wondered about that, too. Our state constitution (Washington) expressly states that taxes collected must be used for public purposes only — Amazon is certainly big but it isn’t public. The constitution also prohibits lending the state’s credit, or that of any political subdivision of the state, to a private entity.
On the other hand, economic development agencies are created for that purpose, and funded with public money by the legislature. In so encouraging economic development, they can assist private companies.
But this Chicago proposal is just raking in income taxes from employees and then delivering the take back to their employer, which sure looks like a plain and simple kickback scheme. But then, this is Chicago after all.
This is the problem with power.
Municipalities and states wield enough power where they can bend it to get what they want, and what’s obviously true is that the jobs are desirable for political purposes, not just economic ones. So, inevitably, one municipality or state will do what other ones won’t do – whatever that might turn out to be – and effectively tilt the playing field.
It’s not enough that the remnants of federalism give enough choice amongst states to locate, based on their policies around business, tax, education, etc. That should be enough, and what’s happened in places like Texas and North Carolina are good examples of how that might work out.
Instead, places like Chicago get their hat in the ring, simply because the local polity carries so much weight that it can change the course of rivers if it wants to, in order to serve not the people, but itself.
This is the kind of thing you’d expect from Chicago. The glaring difference is that, in the past, this would have been clandestine and involve phoney identities, shell corporations, Cayman Island middlemen, and Swiss Banks. That was then this is now. Now, it’s in the public offering documents and in the national news. They no longer even have the scruples necessary to be embarrassed.
It’s not just Chicago. Boston and Fresno are offering to give away the government, too.
Not only that, we’ve effectively exempted low-income and poor from federal taxation through the income tax. (We do tax them through the corporate income tax, but they can’t see that.) This is one of the reasons that we never get any spending reform, if you get government goodies for free without having to pay even a nominal amount, there is no incentive to say “Thanks, but no thanks, I’d rather keep my own money and buy what I really want.”
So the only people interested in reform belong to the middle-middle class, which is getting squeezed from both the top and the bottom.
Pretty much…
Ya know . . . that was one of the things that helped cause the collapse of the Roman Empire. Only the middle class had to pay taxes. The poor had nothing to tax and got grain subsidies. The very wealthy could resist paying until there was a change of emperors (and a tax amnesty would ensue). The middle class, especially small shop owners, service providers, and manufacturers had to pay a heavy tax load. They disappeared into the poor – and eventually there was no one available to tax.
Just sayin’
Seawriter
How much actual infrastructure will be required with this new “Second Headquarters”. It’ll essentially just be a glorified office building, right? Amazon would be able to move somewhere else pretty quick, no? I mean, it’s not like they’re bidding a data centre that needs long-term assurances, eh?
The infrastructure is owned by the employees – homes and other illiquid items. Moving is a female dog. Especially if you have a family. Selling a house in a downward-trending market (which is what would happen in Chicago if Amazon left after having been there several years) is also a female dog. Again, especially if you have a family. Plus, if you bought your house via a mortgage, trying to sell it five years after buying is a good way to minimize ROI for the house.
And it will be Amazon’s execs at Chicago who would be hit worst.
Seawriter
Silly. Execs get relocation packages. Others may get relocation packages, but if you don’t get one, you aren’t an exec.
The real question is how much is going to be diverted to line the pockets of Chicago’s connected….
This comment made me laugh out loud.