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Subsidies to Amazon Are Uneconomical, Un-American, and Unconstitutional

98 points by chmaynard 8y ago

Bucephalus355 8y ago
Wow and this is from the quite conservative very free market University of Chicago (Milton Friedman’s group). Amazon is like an army undergoing the pincer movement and getting closed in from both sides...
- ArchTypical 8y ago
  Dominate the market, conservatives like it, liberals decry it. Take subsidies because you want to get some free money, you get the reverse edit: liberals also hate subsidy corruption (good note).
  - gilrain 8y ago
    Liberals are also against baldly corrupt subsidies, of course.
    - merpnderp 8y ago
      Are they? The 2009 recession was full of corporate cheese and it seemed like a pretty solid front defending it.
      - Goronmon 8y ago
        Were they defending corporate cheese or just against the idea of letting the economy nosedive and hope for the best?
      - knowuh 8y ago
        Can you provide an example? This might be the first time I have heard a critique from that angle. Many of my capital-skeptic friends were against the bank and insurance bailouts without meaningful consequences. They are still pretty irked TBH. I think of these people as 'liberal' in the 'leftist' sense of the word. Maybe you mean 'neo-liberal', as in the economic sense? Or maybe you just have a different demographic group in mind that I am unaware of. Regardless, I would like to learn more.
        merpnderp 8y ago
        In particular I GM in mind. A clear cut case of corporate welfare going to a badly ran corporation, but which had strong political connections.
      - delecti 8y ago
        I would have described the ~2008-9 bailouts exactly the opposite of that. Lots of people were very critical of them, and they weren't gifts, they were the government investing in those companies (buying stock) so they didn't go under. As a whole, those investments ended up being fairly profitable for the government.
rusher81572 8y ago
The Government should not pick winners and losers. It is unfair for one company to get these great incentives. Also, the taxpayer ends up subsidizing all their monetary benefits for choosing the city. I am glad that both sides agree that this is wrong.
- theptip 8y ago
  > the taxpayer ends up subsidizing all their monetary benefits The taxpayer in NY ends up better off after this deal; even critical articles like the OP acknowledge that the subsidies are dwarfed by the increase in tax revenues that the state will gain. To recap, Amazon is getting ~$1.5b in performance-pegged tax breaks over 10 years. The OP gives an estimate of $14b over 25 years in tax revenue added; that gives $5.6b over the same 10 year period, or over $4b net gain to NY taxpayers. Note, if the office turns out to be less successful at generating tax revenue than projected, then the tax breaks scale down. There are legitimate arguments against this kind of deal, such as that it encourages a race to the bottom where desperate cities offer close to zero net taxes. But we're pretty clearly quite far away from that equilibrium; cities still have bargaining power in these negotiations.
  - Barrin92 8y ago
    >The taxpayer in NY ends up better off after this deal; you added a qualifier that OP did not add. Yes, the new york taxpayer is better off, but this is rent-seeking behavior New York is better off by subsidizing Amazon in the same sense as Luxembourg is better off compared to other European countries by being a tax haven. Hardly something applaudable.
    - Godel_unicode 8y ago
      NY taxpayers are collectively paying for something of benefit to them with their tax dollars. It's something which can only be paid for by aggregating many people's money together, and creates a spillover benefit for the people paying for it. That's literally what taxes are for.
manfredo 8y ago
My understanding is that these tax breaks were never intended to be subsidies, but rather mechanisms to entice Amazon to set up shop in said area. Say you're a landlord, and you can't find a tenant for a unit. In response, you offer lower the rent. Is that a subsidy? Say you're at a car dealership, and you can't find a buyer for a given type of car. So you offer something like preferable financing, or extended warranty. Is that subsidizing the car buyer? I'd say no, they're offering incentives, not subsidies. Sure, this may sound like spitting hairs but I do think calling the tax deals given to Amazon a subsidy is deceptive. In my mind, a subsidy is giving to support someone or something in need, that usually wouldn't be profitable otherwise. Like green energy, electric vehicles, or growing certain types of crops. The delals given to Amazon were tax incentives. Something Amazon doesn't need, but the city offers in order to entice Amazon into setting up shop there.
- bassman9000 8y ago
  Comparing a landlord, which only represents the owners' interests, to the state, which represents all taxpayers', doesn't make sense.
  - deleted 8y ago
    [deleted]
  - manfredo 8y ago
    In a sense, the state is the landlord of all the residents of the state. The state provides services to the people, and in return the people pay rent (taxes) to the state. This is not directly related to the point I'm making though: the point of these tax deals is not to help Amazon's business (though that is likely a side effect). The point of these deals were to entice Amazon to set up shop in that location. Thus, it is better to call these deals incentives rather than subsidies.
    - rosser 8y ago
      > Thus, it is better to call these deals incentives rather than subsidies. Note the added emphases: "A subsidy or government incentive is a form of financial aid or support extended to an economic sector (or institution, business, or individual) generally with the aim of promoting economic and social policy." [0] "a grant by a government to a private person or company to assist an enterprise deemed advantageous to the public" [1] "A subsidy is a benefit given to an individual, business or institution, usually by the government. It is usually in the form of a cash payment or a tax reduction." [2] I don't think there's nearly as bright a line between "subsidy" and "incentive" as you're trying to paint here. [0] https://en.wikipedia.org/wiki/Subsidy https://en.wikipedia.org/wiki/Subsidy [1] https://www.merriam-webster.com/dictionary/subsidy https://www.merriam-webster.com/dictionary/subsidy [2] https://www.investopedia.com/terms/s/subsidy.asp https://www.investopedia.com/terms/s/subsidy.asp
tootie 8y ago
> Amazon is not going to be more productive in New York than in New Jersey That's a humongous assumption and one that I think simply isn't true. Not specifically that New Jersey is a worse place to run a business, but in general he seems to be assuming that geography is complete non-issue. That's just obviously not true. There's a zillion businesses that have set roots in NYC or other industry hot spots and most of them received no specific incentives. I mean, why did they even conduct this search if everyplace is the same? They could have put their HQ2 in the Nevada desert and saved way more than their tax breaks were worth.
- jackconnor 8y ago
  Yea I found this a very weird thing to say, as engineering talent was a huge reason for choosing New York, and is a resource that New jersey does not have in anywhere near the same abundance. I am curious where they would've chosen had subsidies actually been illegal, as this author says we should do. My guess is that they would've ended up in, you guessed it, New York and Virginia, regardless.
  - deleted 8y ago
    [deleted]
  - Hypx 8y ago
    I find that very hard to believe given the close proximity of NJ to NY. In particular, Newark is literally just across the river from New York City.
    - lowercased 8y ago
      On top of that, how many people working in NYC actually commute in from NJ? Meaning... they're actually living in NJ in the first place.
      - tarboreus 8y ago
        You actually are wrong about this. No one here want to work in NJ. Few young people in the city keep cars. People would scratch their heads if you told them you were working out there. Might be just a psychological thing. but it's real. I wouldn't look for jobs in NJ unless they dropped into my lap.
bilbo0s 8y ago
I marvel at the power of NYC. We in Wisconsin have been shouting this from the highest rooftop since the day Walker inflicted the Foxconn "deal" upon us. But there was not a single word from places like U Chicago. I mean, Walker is part of the GOP, so if conservatives had spoken up it might have helped. Who knows? Now, the way it stands, we're obliged to pay more than three times as much money as NYC, for less than HALF the number of jobs. And, again, if all that weren't bad enough, the jobs at Foxconn will likely pay much less than the jobs at Amazon. How do you get marketing like the people in NYC have? Because man, we got HOSED on that deal. I'd, at least, like a law that would restrict governors or mayors or whatnot from making deals like that without putting them to a popular vote.
- HappySweeney 8y ago
  > How do you get marketing like the people in NYC have? Be the city with the HQ of most/all large US marketing firms.
rayiner 8y ago
> I am not a lawyer. As an economist, however, I can state with certainty that there is no difference between discriminating through taxes and discriminating through subsidies. I can also say that preferential trade areas and preferential treatment for some companies are equally destructive of free commerce. Hence, it is not unreasonable to argue that these types of corporate subsidies are even unconstitutional. The dormant commerce clause prevents states from discriminating against in-state businesses versus out-of-state businesses, not between in-state businesses. It's not a dormant commerce clause violation for a state to charge different local taxes to different local businesses. It's only a violation if the state imposes different taxes on otherwise similarly situated businesses on the basis of state residency. E.g. if New York gave people a sales tax discount if they purchase from an online retailer with an in-state presence.
- vihvubbd 8y ago
  And inner state commerce isn't supposed to apply to in state trade, except its the entire basis for regulating drug laws. You know how we had a constitutional amendment to ban alcohol, yet cannabis was by federal fiat. It's so cute how someone believes they have an intellectual answer to what is simply naked abuse of power. The Constitution has been regularly ignored or greatly abused for about a century now. Get over it.
- will_brown 8y ago
  Well one such example of different tax treatment would be professional such as lawyers. At least in my state lawyers are exempt from charging/collecting State sales tax for our services. But there is a major difference in the legislature passing a law exempting certain types of businesses from charging/collecting sales tax vs opaque, back room dealing to carve out special taxes for a single company. It was just recent a post made it to the front page regarding the proposed BEZOS Act for large companies to reimburse the Federal Government for federal welfare subsidies low wage workers receive. Even though the proposed Act didn’t actually single out Amazon, they were used as an example as well as Walmart of companies that would fit into this legal framework. Still many here in HN screamed Bill of Attainder. I disagree (and personally like the spirit legislation). I do think this is distinguishable, because obviously this is a personalized tax deal made for one company. Of course if this is constitutional for cities/states to just create individual tax deals, maybe all those other cities who got played by Amazon should take a que and go ahead and create a personalized tax deal for Amazon and tax the ever living shit out of Amazon so they effectively can do business in their jurisdiction.
superbaconman 8y ago
I've never been a fan of granting special treatment to specific businesses. It's completely unfair to local competitors who have been quietly paying their taxes; You can boast about the economic gains, but don't forget about the harm inflicted on the rest of the sector.
djrogers 8y ago
> If companies are successful in pitting one state against another, they will end up paying no state taxes. As a result, the economy will not be one iota more efficient This was preceded by a claim that Amazon would employ 25000+ people at the new HQs. Those people will pay taxes, and having 25k extra jobs in your state is, economically speaking, better than not having them.

98 points by chmaynard 8y ago

Wow and this is from the quite conservative very free market University of Chicago (Milton Friedman’s group). Amazon is like an army undergoing the pincer movement and getting closed in from both sides...

ArchTypical 8y ago
Dominate the market, conservatives like it, liberals decry it. Take subsidies because you want to get some free money, you get the reverse edit: liberals also hate subsidy corruption (good note).
- gilrain 8y ago
  Liberals are also against baldly corrupt subsidies, of course.
  - merpnderp 8y ago
    Are they? The 2009 recession was full of corporate cheese and it seemed like a pretty solid front defending it.
    - Goronmon 8y ago
      Were they defending corporate cheese or just against the idea of letting the economy nosedive and hope for the best?
    - knowuh 8y ago
      Can you provide an example? This might be the first time I have heard a critique from that angle. Many of my capital-skeptic friends were against the bank and insurance bailouts without meaningful consequences. They are still pretty irked TBH. I think of these people as 'liberal' in the 'leftist' sense of the word. Maybe you mean 'neo-liberal', as in the economic sense? Or maybe you just have a different demographic group in mind that I am unaware of. Regardless, I would like to learn more.
      - merpnderp 8y ago
        In particular I GM in mind. A clear cut case of corporate welfare going to a badly ran corporation, but which had strong political connections.
    - delecti 8y ago
      I would have described the ~2008-9 bailouts exactly the opposite of that. Lots of people were very critical of them, and they weren't gifts, they were the government investing in those companies (buying stock) so they didn't go under. As a whole, those investments ended up being fairly profitable for the government.

rusher81572 8y ago

The Government should not pick winners and losers. It is unfair for one company to get these great incentives. Also, the taxpayer ends up subsidizing all their monetary benefits for choosing the city. I am glad that both sides agree that this is wrong.

theptip 8y ago
> the taxpayer ends up subsidizing all their monetary benefits The taxpayer in NY ends up better off after this deal; even critical articles like the OP acknowledge that the subsidies are dwarfed by the increase in tax revenues that the state will gain. To recap, Amazon is getting ~$1.5b in performance-pegged tax breaks over 10 years. The OP gives an estimate of $14b over 25 years in tax revenue added; that gives $5.6b over the same 10 year period, or over $4b net gain to NY taxpayers. Note, if the office turns out to be less successful at generating tax revenue than projected, then the tax breaks scale down. There are legitimate arguments against this kind of deal, such as that it encourages a race to the bottom where desperate cities offer close to zero net taxes. But we're pretty clearly quite far away from that equilibrium; cities still have bargaining power in these negotiations.
- Barrin92 8y ago
  >The taxpayer in NY ends up better off after this deal; you added a qualifier that OP did not add. Yes, the new york taxpayer is better off, but this is rent-seeking behavior New York is better off by subsidizing Amazon in the same sense as Luxembourg is better off compared to other European countries by being a tax haven. Hardly something applaudable.
  - Godel_unicode 8y ago
    NY taxpayers are collectively paying for something of benefit to them with their tax dollars. It's something which can only be paid for by aggregating many people's money together, and creates a spillover benefit for the people paying for it. That's literally what taxes are for.

manfredo 8y ago

My understanding is that these tax breaks were never intended to be subsidies, but rather mechanisms to entice Amazon to set up shop in said area. Say you're a landlord, and you can't find a tenant for a unit. In response, you offer lower the rent. Is that a subsidy? Say you're at a car dealership, and you can't find a buyer for a given type of car. So you offer something like preferable financing, or extended warranty. Is that subsidizing the car buyer? I'd say no, they're offering incentives, not subsidies. Sure, this may sound like spitting hairs but I do think calling the tax deals given to Amazon a subsidy is deceptive. In my mind, a subsidy is giving to support someone or something in need, that usually wouldn't be profitable otherwise. Like green energy, electric vehicles, or growing certain types of crops. The delals given to Amazon were tax incentives. Something Amazon doesn't need, but the city offers in order to entice Amazon into setting up shop there.

bassman9000 8y ago
Comparing a landlord, which only represents the owners' interests, to the state, which represents all taxpayers', doesn't make sense.
- deleted 8y ago
  [deleted]
- manfredo 8y ago
  In a sense, the state is the landlord of all the residents of the state. The state provides services to the people, and in return the people pay rent (taxes) to the state. This is not directly related to the point I'm making though: the point of these tax deals is not to help Amazon's business (though that is likely a side effect). The point of these deals were to entice Amazon to set up shop in that location. Thus, it is better to call these deals incentives rather than subsidies.
  - rosser 8y ago
    > Thus, it is better to call these deals incentives rather than subsidies. Note the added emphases: "A subsidy or government incentive is a form of financial aid or support extended to an economic sector (or institution, business, or individual) generally with the aim of promoting economic and social policy." [0] "a grant by a government to a private person or company to assist an enterprise deemed advantageous to the public" [1] "A subsidy is a benefit given to an individual, business or institution, usually by the government. It is usually in the form of a cash payment or a tax reduction." [2] I don't think there's nearly as bright a line between "subsidy" and "incentive" as you're trying to paint here. [0] https://en.wikipedia.org/wiki/Subsidy https://en.wikipedia.org/wiki/Subsidy [1] https://www.merriam-webster.com/dictionary/subsidy https://www.merriam-webster.com/dictionary/subsidy [2] https://www.investopedia.com/terms/s/subsidy.asp https://www.investopedia.com/terms/s/subsidy.asp

tootie 8y ago

> Amazon is not going to be more productive in New York than in New Jersey That's a humongous assumption and one that I think simply isn't true. Not specifically that New Jersey is a worse place to run a business, but in general he seems to be assuming that geography is complete non-issue. That's just obviously not true. There's a zillion businesses that have set roots in NYC or other industry hot spots and most of them received no specific incentives. I mean, why did they even conduct this search if everyplace is the same? They could have put their HQ2 in the Nevada desert and saved way more than their tax breaks were worth.

jackconnor 8y ago
Yea I found this a very weird thing to say, as engineering talent was a huge reason for choosing New York, and is a resource that New jersey does not have in anywhere near the same abundance. I am curious where they would've chosen had subsidies actually been illegal, as this author says we should do. My guess is that they would've ended up in, you guessed it, New York and Virginia, regardless.
- deleted 8y ago
  [deleted]
- Hypx 8y ago
  I find that very hard to believe given the close proximity of NJ to NY. In particular, Newark is literally just across the river from New York City.
  - lowercased 8y ago
    On top of that, how many people working in NYC actually commute in from NJ? Meaning... they're actually living in NJ in the first place.
    - tarboreus 8y ago
      You actually are wrong about this. No one here want to work in NJ. Few young people in the city keep cars. People would scratch their heads if you told them you were working out there. Might be just a psychological thing. but it's real. I wouldn't look for jobs in NJ unless they dropped into my lap.

bilbo0s 8y ago

I marvel at the power of NYC. We in Wisconsin have been shouting this from the highest rooftop since the day Walker inflicted the Foxconn "deal" upon us. But there was not a single word from places like U Chicago. I mean, Walker is part of the GOP, so if conservatives had spoken up it might have helped. Who knows? Now, the way it stands, we're obliged to pay more than three times as much money as NYC, for less than HALF the number of jobs. And, again, if all that weren't bad enough, the jobs at Foxconn will likely pay much less than the jobs at Amazon. How do you get marketing like the people in NYC have? Because man, we got HOSED on that deal. I'd, at least, like a law that would restrict governors or mayors or whatnot from making deals like that without putting them to a popular vote.

HappySweeney 8y ago
> How do you get marketing like the people in NYC have? Be the city with the HQ of most/all large US marketing firms.

rayiner 8y ago

> I am not a lawyer. As an economist, however, I can state with certainty that there is no difference between discriminating through taxes and discriminating through subsidies. I can also say that preferential trade areas and preferential treatment for some companies are equally destructive of free commerce. Hence, it is not unreasonable to argue that these types of corporate subsidies are even unconstitutional. The dormant commerce clause prevents states from discriminating against in-state businesses versus out-of-state businesses, not between in-state businesses. It's not a dormant commerce clause violation for a state to charge different local taxes to different local businesses. It's only a violation if the state imposes different taxes on otherwise similarly situated businesses on the basis of state residency. E.g. if New York gave people a sales tax discount if they purchase from an online retailer with an in-state presence.

vihvubbd 8y ago
And inner state commerce isn't supposed to apply to in state trade, except its the entire basis for regulating drug laws. You know how we had a constitutional amendment to ban alcohol, yet cannabis was by federal fiat. It's so cute how someone believes they have an intellectual answer to what is simply naked abuse of power. The Constitution has been regularly ignored or greatly abused for about a century now. Get over it.
will_brown 8y ago
Well one such example of different tax treatment would be professional such as lawyers. At least in my state lawyers are exempt from charging/collecting State sales tax for our services. But there is a major difference in the legislature passing a law exempting certain types of businesses from charging/collecting sales tax vs opaque, back room dealing to carve out special taxes for a single company. It was just recent a post made it to the front page regarding the proposed BEZOS Act for large companies to reimburse the Federal Government for federal welfare subsidies low wage workers receive. Even though the proposed Act didn’t actually single out Amazon, they were used as an example as well as Walmart of companies that would fit into this legal framework. Still many here in HN screamed Bill of Attainder. I disagree (and personally like the spirit legislation). I do think this is distinguishable, because obviously this is a personalized tax deal made for one company. Of course if this is constitutional for cities/states to just create individual tax deals, maybe all those other cities who got played by Amazon should take a que and go ahead and create a personalized tax deal for Amazon and tax the ever living shit out of Amazon so they effectively can do business in their jurisdiction.

superbaconman 8y ago

I've never been a fan of granting special treatment to specific businesses. It's completely unfair to local competitors who have been quietly paying their taxes; You can boast about the economic gains, but don't forget about the harm inflicted on the rest of the sector.

djrogers 8y ago

> If companies are successful in pitting one state against another, they will end up paying no state taxes. As a result, the economy will not be one iota more efficient This was preceded by a claim that Amazon would employ 25000+ people at the new HQs. Those people will pay taxes, and having 25k extra jobs in your state is, economically speaking, better than not having them.