Amazon and tax incentives

New accounting standards reveal that state and local economic development subsidies to attract new business facilities already cost public schools at least $1.8 billion a year before Amazon's record-breaking shakedown.

Amazon's highly visible auction for the location of its second North American headquarters, referred to as HQ2, exposed the new heights state and municipal governments will go to in dangling taxpayer-funded incentives over private interests.  After 14 states and Toronto, Canada made offers of up to $8.5 billion, Amazon accepted $2 billion in deals last month from Crystal City, Virginia, and Queens, New York.

Most taxpayers understand that economic development "incentives" to entice business to expand or build new facilities are blatant corporate welfare that interferes with free competition by redistributing wealth to politically favored elites.  But New York's Governor Andrew Cuomo justified the incentives based on New York corporate and property tax rates being uncompetitive.  Cuomo pleaded: "If we do nothing, they're going to Texas."

Despite independent studies revealing that only 4 percent of economic development incentives result in any net positive benefits to a community, and 5 percent result in net negative impacts, state and local governments have been approving about $80 billion of new economic development incentives each year, mostly for tax abatements.

Both capitalist and socialist economists have opposed using public taxes to benefit private interests, since Adam Smith launched the profession when he published The Wealth of Nations in 1776.  He referred to crony capitalism in his day as "rent-seeking":

Merchants and master manufacturers are, in this order, the two classes of people who commonly employ the largest capitals, and who by their wealth draw to themselves the greatest share of the public consideration.

It has been difficult to analyze the scale of this "Invisible Hand" of corporate favoritism by public actors that bestow tax-abatement and other non-cash incentives on big businesses that can afford to lobby for their private interests.  But the Government Accounting Standards Board (GASB) just implemented "Statement 77" that now requires all state and municipal government to annually disclose tax-abatements costs.

By extracting data from the first 5,600 of the America's 13,500 independent public school districts to comply with the GASB rule, Good Jobs First reported in "The New Math on School Finance" that tax abatements cost public schools in 28 states at least $1.8 billion in annual funding due to corporate economic development deals. 

School districts in ten states – South Carolina, New York, Louisiana, Ohio, Oregon, Missouri, Pennsylvania, Michigan, Texas, and Georgia – lost at least $1.6 billion, or about the equivalent of the cost of 28,000 teachers.  About 250 public school districts had losses of at least $1 million; 4 districts had losses of over $50 million; and Hillsboro, Oregon schools had the largest single loss of $96.7 million as part of a deal with Intel.

Although it is common for local education boards to be elected and major school debt transactions must be approved by local voters, economic development incentives that can redistribute local school funding to private interests is usually made by state or regional government representatives who are independent of local school control.

CNBC News reported that after Amazon announced the acceptance of the New York and Virginia economic development incentive packages, CEO Jeff Bezos told an all-hands meeting at the company's corporate headquarters in Seattle: "One day, Amazon will fail but our job is to delay it as long as possible."  Bezos seemed to be demanding that his team work harder to find even bigger economic incentive packages for Amazon.

New accounting standards reveal that state and local economic development subsidies to attract new business facilities already cost public schools at least $1.8 billion a year before Amazon's record-breaking shakedown.

Amazon's highly visible auction for the location of its second North American headquarters, referred to as HQ2, exposed the new heights state and municipal governments will go to in dangling taxpayer-funded incentives over private interests.  After 14 states and Toronto, Canada made offers of up to $8.5 billion, Amazon accepted $2 billion in deals last month from Crystal City, Virginia, and Queens, New York.

Most taxpayers understand that economic development "incentives" to entice business to expand or build new facilities are blatant corporate welfare that interferes with free competition by redistributing wealth to politically favored elites.  But New York's Governor Andrew Cuomo justified the incentives based on New York corporate and property tax rates being uncompetitive.  Cuomo pleaded: "If we do nothing, they're going to Texas."

Despite independent studies revealing that only 4 percent of economic development incentives result in any net positive benefits to a community, and 5 percent result in net negative impacts, state and local governments have been approving about $80 billion of new economic development incentives each year, mostly for tax abatements.

Both capitalist and socialist economists have opposed using public taxes to benefit private interests, since Adam Smith launched the profession when he published The Wealth of Nations in 1776.  He referred to crony capitalism in his day as "rent-seeking":

Merchants and master manufacturers are, in this order, the two classes of people who commonly employ the largest capitals, and who by their wealth draw to themselves the greatest share of the public consideration.

It has been difficult to analyze the scale of this "Invisible Hand" of corporate favoritism by public actors that bestow tax-abatement and other non-cash incentives on big businesses that can afford to lobby for their private interests.  But the Government Accounting Standards Board (GASB) just implemented "Statement 77" that now requires all state and municipal government to annually disclose tax-abatements costs.

By extracting data from the first 5,600 of the America's 13,500 independent public school districts to comply with the GASB rule, Good Jobs First reported in "The New Math on School Finance" that tax abatements cost public schools in 28 states at least $1.8 billion in annual funding due to corporate economic development deals. 

School districts in ten states – South Carolina, New York, Louisiana, Ohio, Oregon, Missouri, Pennsylvania, Michigan, Texas, and Georgia – lost at least $1.6 billion, or about the equivalent of the cost of 28,000 teachers.  About 250 public school districts had losses of at least $1 million; 4 districts had losses of over $50 million; and Hillsboro, Oregon schools had the largest single loss of $96.7 million as part of a deal with Intel.

Although it is common for local education boards to be elected and major school debt transactions must be approved by local voters, economic development incentives that can redistribute local school funding to private interests is usually made by state or regional government representatives who are independent of local school control.

CNBC News reported that after Amazon announced the acceptance of the New York and Virginia economic development incentive packages, CEO Jeff Bezos told an all-hands meeting at the company's corporate headquarters in Seattle: "One day, Amazon will fail but our job is to delay it as long as possible."  Bezos seemed to be demanding that his team work harder to find even bigger economic incentive packages for Amazon.