10 ms·

Adding Up the Cost of Tax Breaks for Big Tech’s Data Centers (2016)

91 points by dontreact 8y ago

morpheuskafka 8y ago
The local government seems to disagree: https://www.newsobserver.com/news/business/article214062219.html https://www.newsobserver.com/news/business/article214062219....
jerkstate 8y ago
Are municipalities really this stupid, or are these articles missing part of the picture?
- dleavitt 8y ago
  Yeah, not a great article and doesn't seem concerned with the "why." A couple of possible explanations: 1. There are beneficial effects other than tax revenue - maybe these municipalities are hoping the new data centers will help turn them into hubs - draw other businesses, talented workers, etc. 2. The decision-makers' incentives aren't well-aligned with those of the municipality. Maybe the local business owners who fund their campaigns benefit disproportionately from these big projects. Maybe the headline of "brought Apple to North Carolina" outweighs the actual, harmful effects of the deal they signed when the next election comes around, etc.
  - puzzle 8y ago
    I knew people at Google that travelled to data centers very frequently. There are all sorts of indirect extra business and tax revenues from these operations that aren't tied to local employees alone. Mine is just a small example, but there are more. Even with good baseline data, it might not be trivial to assess the full economic impact of one of these sites.
- temp-dude-87844 8y ago
  They're largely just desperate. The report here doesn't separately address local subsidies vs. state subsidies, but even with natural constraints on site selection, by the report's own reckoning the competition is often between different states, or about foregoing a project until a later time, by which point circumstances could be different in infrastructure, tech, and politics. In this view, money spent now to ensure a successful deal, which may have eventually happened anyway, is a worthwhile boost even if the costs are never recouped. It sounds bizarre, but deals like this send a signal to other businesses that the state is "open for business", which is both a substantial psychological boost and a signal that generous incentive packages may be on the table, but this doesn't always mean that taxpayers get taken for a ride. Smaller businesses have less negotiating power. That's where a "business-friendly" jurisdiction recoups some of the costs of subsidies.
  - acqq 8y ago
    > Smaller businesses have less negotiating power. That's where a "business-friendly" jurisdiction recoups some of the costs of subsidies. And I can’t see that as positive. Take taxpayers money, gift it to the richest companies, then try to recoup a part of losses from the small players. As the society we shoild somehow strive for being able to correct such cases.
    - AnthonyMouse 8y ago
      The problem is that governments still haven't figured out that 5% of a thousand is more than 35% of a hundred. What keeps happening is that you have an area which has a successful economy because it has a climate open to entrepreneurship. Then it becomes trendy to hate businesses and not worry about regulatory burdens or high tax rates because businesses are currently doing well. Then the new regulatory burdens and taxes harm the local economy, especially small businesses, and the local politicians become desperate to show a turnaround. But you get more jobs faster to get them all from bribing a huge corporation to swoop in than to actually clean up your regulatory environment and wait a decade for small businesses to recover, so that's what they do. Then the huge corporations are still making huge profits, so you still get calls for more regulations and more taxes, even though that's exactly what's killing your small businesses and making you dependent on huge corporations to begin with. You have to break the cycle in the beginning. Once you're already on the back foot, the huge corporations have the leverage because your choices are to give them whatever they want (and one of the things they want is for you to be more dependent on them), or to suffer short-term government budget cuts as you lower taxes to save your small businesses but then have to wait for the lag time between when you reduce the taxes and when the local businesses come back. Assuming you're not already in the death spiral of economic decline leading to crumbling infrastructure leading to economic decline.
- SpicyLemonZest 8y ago
  They're missing a huge part of the picture. Take the Apple deal. Of the $321m the article quotes, $300m comes from a single source: a highly technical tweak of North Carolina's corporate income tax, to use what's known as "single sales factor apportionment". But most states apportion corporate income tax this way, so it doesn't necessarily make sense to count the entire amount Apple saves as a handout. Apple would argue, entirely reasonably, that North Carolina was just modernizing their tax code to be more fair.
nindalf 8y ago
This is similar to the criticism of a pipeline that's been planned for many years in America called Keystone XL. It's proponents claim it will create thousands of jobs. It's detractors say that most of the jobs will be temporary and once the pipeline is built, only 50 employees will be required to run it. But this ignores one important fact. For plumbers, welders, electricians, bricklayers and crane operators, every job is a temporary job. Building that pipeline or datacenter employs them only for a couple of years, but pays them good money for work that is satisfying to them. When these reports choose to look only at permanent jobs, it explicitly ignores blue collar workers in favour of white collar ones. The calculus for politicians is different from those who write white papers for think tanks. The blue collar workers vote. Simple as that.
- deleted 8y ago
  [deleted]
- Scoundreller 8y ago
  One way or another, that landlocked oil in Alberta will make its way to market. If the US doesn't want it, it will get pipelined to the Pacific coast and tankered to Asia or sent by rail within North America or to the Pacific. I think Keystone XL's real detractors are US oil producers. It's real proponents are oil consumers that (clearly!) could not care less about where the oil comes from.
  - gumby 8y ago
    > One way or another, that landlocked oil in Alberta will make its way to market. That's not necessarily true. The point of the capital investment in the pipeline is that the overall cost will be lower than shipping it from the pacific. If the pipeline doesn't exist, it may not be economic to mine the tar sands (this is especially true for tar sands oil which is very expensive (== itself consumes a lot of energy) to extract, so is only viable when oil prices are quite high. > I think Keystone XL's real detractors are US oil producers. Some of them, but the majors are integrated and having an alternative supplier to feed their refineries is good for them. The other source of opposition is people who don't want to deal with the externalities: the pipleline itself, of course but more importantly leaks. Keystone's other pipelines leak and there's no reason to believe this one should be any different.
jlangenauer 8y ago
Examples like this make me appreciate the European Union's strict rules around state aid - which do a lot to eliminate beggar-thy-neighbour competition between countries, preserve tax bases to actually provide services and infrastructure to citizens, and hinder companies from playing off country against and city against city. (That said, they're not perfect - witness Irish tax law as a prominent example)
- goliatone 8y ago
  Worst than the Irish tax system is Luxembourg’s and that one has been around since the 70s. Plenty of US corporations- like Wall-mart, Amazon- have subsidiaries in Luxembourg
jondubois 8y ago
Government policies related to job creation don't help workers. They could have used the money to help bootstrap small entrepreneurs but instead, most of that money ends up directly in the pockets of large shareholders and executives. Those few workers who do get some of that money are basically enslaved to these corporations. If a company pays you so little and there are almost no other employment options available for you and you can't afford to lose your job with that company; that's basically slavery.
- kortilla 8y ago
  >a company pays you so little and there are almost no other employment options available for you and you can't afford to lose your job with that company; that's basically slavery. Cool political story, but it doesn’t line up with the current realities of the current labor market. Unemployment is very low and this is finally resulting in some upward wage pressure as well. >most of that money ends up directly in the pockets of large shareholders This is a senseless statement. When it comes to dividends and buybacks, all shareholders get paid regardless of their size.
jrnvs 8y ago
How come this is legal in the US? It’s extremely unfair toward other businesses that are too small to coerce the government to make a tax exemption for their individual business. To me, it seems to create inequality before the law. I don’t think the officials handing out the tax breaks have bad intentions, but the system itself seems corrupt.
- grecy 8y ago
  > How come this is legal in the US? This is just legalized corruption, but of course people in developed countries don't like to use that dirty word, so they call it "tax breaks" or "campaign contributions". After spending 2.5 years through 30 countries in Africa, I can tell you there is no difference. It's corruption.
- paulddraper 8y ago
  > How come this is legal in the US? It's legal because the people making the laws are the people making the laws. It's a "who watches the watchers" sort of situation. Besides electing people that just don't do this, how might you imagine this being "illegal"? Some constitutional item that can't be overridden by the legislature?
- alkonaut 8y ago
  It keeps amazing me too. A state (or any other local government) shouldn't be allowed to subsidize individual businesses, nor whole industries. Allowing it just means businesses can play states out against each other and it becomes a race to the bottom. The EU solved it. The US could too. Sometimes in the discussion about this I get counterarguments about how it’s a “win win” (company gets subsidy, area gets jobs) or how it’s a net gain for the area (without the subsidy you get nothing, and with the tax break you get the jobs so at least it’s something).
  - bko 8y ago
    > A state (or any other local government) shouldn't be allowed to subsidize individual businesses, nor whole industries Does this apply to green industries as well? How about industries that pollute? Should there just be one flat tax for every business regardless of revenue/income? How about valid business deductions? Should all capital equipment depreciate the same as well? Should payroll taxes be the same regardless of the number of workers and their incomes? It's nice to say there should be no subsidies on businesses or industries and I agree with the sentiment, but in actuality there is a lot of complexity in the tax code and a "level playing field" would be a drastic change to what we have now. For instance, you could think businesses should be taxed progressively on income. So now you have to define revenue and expenses, which can leave a lot of arbitrary distinctions and vast differences among businesses and industries. > Allowing it just means businesses can play states out against each other and it becomes a race to the bottom There's already competition among cities, states and countries and its generally a good thing. Some states offer differences in taxes (e.g. rates, income vs property, etc), regulations (e.g. zoning, employment), benefits (e.g. state sponsored insurance), infrastructure (e.g. roads & bridges). This is thought to be a great benefit as smaller political entities can experiment to lure people and businesses. Not to mention it makes. Having a top down approach doesn't really make sense. I don't think its a race to the bottom, it's competition and states and cities should have to compete to provide its residences and businesses the best deal. The best form of charity is luggage. People escape poverty and leave places with poor governance to greener pastures.
refurb 8y ago
If I give a company $100M in tax breaks to come to my city, and they end up paying $50M in tax (instead of $150M), the outcome was financially positive as the alternative was that they don’t come and my tax revenue is $0.
- grecy 8y ago
  > If I give a company $100M in tax breaks to come to my city, and they end up paying $50M in tax (instead of $150M), the outcome was financially positive as the alternative was that they don’t come and my tax revenue is $0. And now you're in a race to the bottom with every other city in the USA. You're lowing the standard of living for every normal person (less tax revenue to spend on schools, roads, etc.) and you're increasing the standard of living for big companies (more profit) Rather than doing that, NO city should offer any tax breaks, and that company will come to some city and pay $150M in taxes, thus improving society overall in the USA. It's amazing how often you guys work against your own interests, degrading your own society in the name of increasing private profits.
  - refurb 8y ago
    It should be a “race to the bottom”, it’s what normal people call “competition”. Cities that can provide the necessary services to their citizens for less money “win”. That’s how it should be and how it works today.
    - grecy 8y ago
      It's competition when it's between two companies. It shouldn't be a competition when it's about providing basic services to a community of people. > Cities that can provide the necessary services to their citizens for less money “win”. I think you would find the vast majority of citizens in OECD countries would not say America is providing necessary services to it's citizens. Though your explanation certainly explains why so many government services are so terrible in America compared to OECD countries. Thanks.
      - 8y ago

91 points by dontreact 8y ago

The local government seems to disagree: https://www.newsobserver.com/news/business/article214062219.html https://www.newsobserver.com/news/business/article214062219....

jerkstate 8y ago

Are municipalities really this stupid, or are these articles missing part of the picture?

dleavitt 8y ago
Yeah, not a great article and doesn't seem concerned with the "why." A couple of possible explanations: 1. There are beneficial effects other than tax revenue - maybe these municipalities are hoping the new data centers will help turn them into hubs - draw other businesses, talented workers, etc. 2. The decision-makers' incentives aren't well-aligned with those of the municipality. Maybe the local business owners who fund their campaigns benefit disproportionately from these big projects. Maybe the headline of "brought Apple to North Carolina" outweighs the actual, harmful effects of the deal they signed when the next election comes around, etc.
- puzzle 8y ago
  I knew people at Google that travelled to data centers very frequently. There are all sorts of indirect extra business and tax revenues from these operations that aren't tied to local employees alone. Mine is just a small example, but there are more. Even with good baseline data, it might not be trivial to assess the full economic impact of one of these sites.
temp-dude-87844 8y ago
They're largely just desperate. The report here doesn't separately address local subsidies vs. state subsidies, but even with natural constraints on site selection, by the report's own reckoning the competition is often between different states, or about foregoing a project until a later time, by which point circumstances could be different in infrastructure, tech, and politics. In this view, money spent now to ensure a successful deal, which may have eventually happened anyway, is a worthwhile boost even if the costs are never recouped. It sounds bizarre, but deals like this send a signal to other businesses that the state is "open for business", which is both a substantial psychological boost and a signal that generous incentive packages may be on the table, but this doesn't always mean that taxpayers get taken for a ride. Smaller businesses have less negotiating power. That's where a "business-friendly" jurisdiction recoups some of the costs of subsidies.
- acqq 8y ago
  > Smaller businesses have less negotiating power. That's where a "business-friendly" jurisdiction recoups some of the costs of subsidies. And I can’t see that as positive. Take taxpayers money, gift it to the richest companies, then try to recoup a part of losses from the small players. As the society we shoild somehow strive for being able to correct such cases.
  - AnthonyMouse 8y ago
    The problem is that governments still haven't figured out that 5% of a thousand is more than 35% of a hundred. What keeps happening is that you have an area which has a successful economy because it has a climate open to entrepreneurship. Then it becomes trendy to hate businesses and not worry about regulatory burdens or high tax rates because businesses are currently doing well. Then the new regulatory burdens and taxes harm the local economy, especially small businesses, and the local politicians become desperate to show a turnaround. But you get more jobs faster to get them all from bribing a huge corporation to swoop in than to actually clean up your regulatory environment and wait a decade for small businesses to recover, so that's what they do. Then the huge corporations are still making huge profits, so you still get calls for more regulations and more taxes, even though that's exactly what's killing your small businesses and making you dependent on huge corporations to begin with. You have to break the cycle in the beginning. Once you're already on the back foot, the huge corporations have the leverage because your choices are to give them whatever they want (and one of the things they want is for you to be more dependent on them), or to suffer short-term government budget cuts as you lower taxes to save your small businesses but then have to wait for the lag time between when you reduce the taxes and when the local businesses come back. Assuming you're not already in the death spiral of economic decline leading to crumbling infrastructure leading to economic decline.
SpicyLemonZest 8y ago
They're missing a huge part of the picture. Take the Apple deal. Of the $321m the article quotes, $300m comes from a single source: a highly technical tweak of North Carolina's corporate income tax, to use what's known as "single sales factor apportionment". But most states apportion corporate income tax this way, so it doesn't necessarily make sense to count the entire amount Apple saves as a handout. Apple would argue, entirely reasonably, that North Carolina was just modernizing their tax code to be more fair.

nindalf 8y ago

This is similar to the criticism of a pipeline that's been planned for many years in America called Keystone XL. It's proponents claim it will create thousands of jobs. It's detractors say that most of the jobs will be temporary and once the pipeline is built, only 50 employees will be required to run it. But this ignores one important fact. For plumbers, welders, electricians, bricklayers and crane operators, every job is a temporary job. Building that pipeline or datacenter employs them only for a couple of years, but pays them good money for work that is satisfying to them. When these reports choose to look only at permanent jobs, it explicitly ignores blue collar workers in favour of white collar ones. The calculus for politicians is different from those who write white papers for think tanks. The blue collar workers vote. Simple as that.

deleted 8y ago
[deleted]
Scoundreller 8y ago
One way or another, that landlocked oil in Alberta will make its way to market. If the US doesn't want it, it will get pipelined to the Pacific coast and tankered to Asia or sent by rail within North America or to the Pacific. I think Keystone XL's real detractors are US oil producers. It's real proponents are oil consumers that (clearly!) could not care less about where the oil comes from.
- gumby 8y ago
  > One way or another, that landlocked oil in Alberta will make its way to market. That's not necessarily true. The point of the capital investment in the pipeline is that the overall cost will be lower than shipping it from the pacific. If the pipeline doesn't exist, it may not be economic to mine the tar sands (this is especially true for tar sands oil which is very expensive (== itself consumes a lot of energy) to extract, so is only viable when oil prices are quite high. > I think Keystone XL's real detractors are US oil producers. Some of them, but the majors are integrated and having an alternative supplier to feed their refineries is good for them. The other source of opposition is people who don't want to deal with the externalities: the pipleline itself, of course but more importantly leaks. Keystone's other pipelines leak and there's no reason to believe this one should be any different.

jlangenauer 8y ago

Examples like this make me appreciate the European Union's strict rules around state aid - which do a lot to eliminate beggar-thy-neighbour competition between countries, preserve tax bases to actually provide services and infrastructure to citizens, and hinder companies from playing off country against and city against city. (That said, they're not perfect - witness Irish tax law as a prominent example)

goliatone 8y ago
Worst than the Irish tax system is Luxembourg’s and that one has been around since the 70s. Plenty of US corporations- like Wall-mart, Amazon- have subsidiaries in Luxembourg

jondubois 8y ago

Government policies related to job creation don't help workers. They could have used the money to help bootstrap small entrepreneurs but instead, most of that money ends up directly in the pockets of large shareholders and executives. Those few workers who do get some of that money are basically enslaved to these corporations. If a company pays you so little and there are almost no other employment options available for you and you can't afford to lose your job with that company; that's basically slavery.

kortilla 8y ago
>a company pays you so little and there are almost no other employment options available for you and you can't afford to lose your job with that company; that's basically slavery. Cool political story, but it doesn’t line up with the current realities of the current labor market. Unemployment is very low and this is finally resulting in some upward wage pressure as well. >most of that money ends up directly in the pockets of large shareholders This is a senseless statement. When it comes to dividends and buybacks, all shareholders get paid regardless of their size.

jrnvs 8y ago

How come this is legal in the US? It’s extremely unfair toward other businesses that are too small to coerce the government to make a tax exemption for their individual business. To me, it seems to create inequality before the law. I don’t think the officials handing out the tax breaks have bad intentions, but the system itself seems corrupt.

grecy 8y ago
> How come this is legal in the US? This is just legalized corruption, but of course people in developed countries don't like to use that dirty word, so they call it "tax breaks" or "campaign contributions". After spending 2.5 years through 30 countries in Africa, I can tell you there is no difference. It's corruption.
paulddraper 8y ago
> How come this is legal in the US? It's legal because the people making the laws are the people making the laws. It's a "who watches the watchers" sort of situation. Besides electing people that just don't do this, how might you imagine this being "illegal"? Some constitutional item that can't be overridden by the legislature?
alkonaut 8y ago
It keeps amazing me too. A state (or any other local government) shouldn't be allowed to subsidize individual businesses, nor whole industries. Allowing it just means businesses can play states out against each other and it becomes a race to the bottom. The EU solved it. The US could too. Sometimes in the discussion about this I get counterarguments about how it’s a “win win” (company gets subsidy, area gets jobs) or how it’s a net gain for the area (without the subsidy you get nothing, and with the tax break you get the jobs so at least it’s something).
- bko 8y ago
  > A state (or any other local government) shouldn't be allowed to subsidize individual businesses, nor whole industries Does this apply to green industries as well? How about industries that pollute? Should there just be one flat tax for every business regardless of revenue/income? How about valid business deductions? Should all capital equipment depreciate the same as well? Should payroll taxes be the same regardless of the number of workers and their incomes? It's nice to say there should be no subsidies on businesses or industries and I agree with the sentiment, but in actuality there is a lot of complexity in the tax code and a "level playing field" would be a drastic change to what we have now. For instance, you could think businesses should be taxed progressively on income. So now you have to define revenue and expenses, which can leave a lot of arbitrary distinctions and vast differences among businesses and industries. > Allowing it just means businesses can play states out against each other and it becomes a race to the bottom There's already competition among cities, states and countries and its generally a good thing. Some states offer differences in taxes (e.g. rates, income vs property, etc), regulations (e.g. zoning, employment), benefits (e.g. state sponsored insurance), infrastructure (e.g. roads & bridges). This is thought to be a great benefit as smaller political entities can experiment to lure people and businesses. Not to mention it makes. Having a top down approach doesn't really make sense. I don't think its a race to the bottom, it's competition and states and cities should have to compete to provide its residences and businesses the best deal. The best form of charity is luggage. People escape poverty and leave places with poor governance to greener pastures.

refurb 8y ago

If I give a company $100M in tax breaks to come to my city, and they end up paying $50M in tax (instead of $150M), the outcome was financially positive as the alternative was that they don’t come and my tax revenue is $0.

grecy 8y ago
> If I give a company $100M in tax breaks to come to my city, and they end up paying $50M in tax (instead of $150M), the outcome was financially positive as the alternative was that they don’t come and my tax revenue is $0. And now you're in a race to the bottom with every other city in the USA. You're lowing the standard of living for every normal person (less tax revenue to spend on schools, roads, etc.) and you're increasing the standard of living for big companies (more profit) Rather than doing that, NO city should offer any tax breaks, and that company will come to some city and pay $150M in taxes, thus improving society overall in the USA. It's amazing how often you guys work against your own interests, degrading your own society in the name of increasing private profits.
- refurb 8y ago
  It should be a “race to the bottom”, it’s what normal people call “competition”. Cities that can provide the necessary services to their citizens for less money “win”. That’s how it should be and how it works today.
  - grecy 8y ago
    It's competition when it's between two companies. It shouldn't be a competition when it's about providing basic services to a community of people. > Cities that can provide the necessary services to their citizens for less money “win”. I think you would find the vast majority of citizens in OECD countries would not say America is providing necessary services to it's citizens. Though your explanation certainly explains why so many government services are so terrible in America compared to OECD countries. Thanks.
    - 8y ago