7 ms·

>> U.S. Steel's 2018 profits shot up to $1.12 billion, from $387 million the previous year. >> the city and state offered the firm a $47 million tax break pack

by glial 8y ago

>> U.S. Steel's 2018 profits shot up to $1.12 billion, from $387 million the previous year. >> the city and state offered the firm a $47 million tax break package. How is this different than the city being held hostage by the organization in question? There was a recent article about ExxonMobile being denied tax breaks by a small town in Louisiana[1], which was unusual enough to set off corporate alarm bells and resulted in much civic hand-wringing. I understand that cities and states want to be attractive places to do business. However, the ability for locations to offer company-specific tax breaks allows companies to pit cities against each other (cough Amazon) and avoid paying to support local services like schools, parks, police, etc. Would we not be better off as a society if business-specific tax breaks were not an option? Wouldn't that 'level the playing field'? Wouldn't it decrease the incentive for local governments to gamble the city's financial future, placing bets on the whims of corporate boards? Can someone tell me what I'm missing? [1] https://www.nytimes.com/2019/02/05/us/louisiana-itep-exxon-mobil.html https://www.nytimes.com/2019/02/05/us/louisiana-itep-exxon-m...

sokoloff 8y ago
It's easy to craft policies that aren't business-specific per-se, but might as well be in effect. "Any employer who commits to increasing their employee base within the city by 25,000 or more employees as measured from Jan 1, 2019 to Dec 31, 2021, shall be entitled to..." "Any company in the oil and gas industry employing at least 500 workers within the town as of July 31, 2019 shall be entitled to..." It would be a level playing field in one sense. If I were willing to commit to hiring 25K workers in NYC, I too would be eligible for the same tax break as Amazon...
- gilrain 8y ago
  It would be a poor judge who was bamboozled by such transparent attempts to twist the meaning of the law. Fortunately they are not computers or engineers.
  - howard941 8y ago
    Yet legislation crafted in such a way that it only benefits a single, known entity, is permissible. More at https://en.wikipedia.org/wiki/Private_bill#United_States https://en.wikipedia.org/wiki/Private_bill#United_States
- maxxxxx 8y ago
  You just created tax breaks exclusively for large companies. I would prefer to give tax breaks to many small companies that employ a few people. The big guys should be able to stand on their own.
pm90 8y ago
> tax breaks were not an option? Cue to the hoards of flag hugging, chest beating, freedom loving American cults. They will argue that its "Federal Government Dictating terms" to them. They will argue its a "violation of free speech". Any such proposal would get drowned out in that chaos. This is what happened when Austin enacted strict regulations for Uber/Lyft. But in that case they simply lobbied the Texas state government and overturned that city ordinance.
- thucydidesofusa 8y ago
  You missed an operative word "business specific". Most conservatives / right wingers / free marketers disdain business specific tax incentives - the common criticisms is that it opens up government to cronyism and allows the government to pick and choose winners. The former governor on Florida is on record as saying that he won't ever make a deal with a specific company but it's very important for him that Florida be so favorable to businesses-writ-large that they don't have to make deals for any specific country because Florida should be the best state for any company to do business.
lend000 8y ago
One alternative: there are no tax breaks, the company has no reason to stay in the city and leaves, and the city is much worse off financially. These kinds of tax breaks and incentives between cities create an interesting market that acts as a check against excessive taxation, similar to how consumers force competing companies to lower prices and improve products. In my opinion, the problem is when the policies very clearly benefit a small group of players (or one) and aren't accessible to the market as a whole (which is quite frequent). Some federal verbiage preventing such specialized tax exemptions would go a long way, forcing cities to compete on city-wide tax plans, rather than being able to buy one big company at the expense of smaller taxpayers that have less power to relocate or negotiate.
- im_down_w_otp 8y ago
  I'm not familiar with any studies which confirm this assertion (i.e. that denying onerous tax-breaks causes big enterprises to leave town), but I am familiar with several which show the opposite to be true (i.e. companies depend on the labor pool, local environment, etc. and end up staying). The inverse of your claim is also evident even in other dimensions. Both NYC and SV are extremely capital inefficient places to operate your business and scale up an organization relative to other locations. The high cost of living, commercial real estate, and upward adjusted compensation expectations, are a kind of implicit tax relative to other areas, but... that hasn't stopped nearly the entirety of the financial and tech markets from hunkering down in their respective locales for a whole variety of reasons which make that comparative nominal capital inefficiency assumed to be more than worth it by employers and investors. Can you elaborate and/or substantiate your position?
  - lend000 8y ago
    The amount of location-agnostic industry (e.g. software) in Texas or the number of companies officially headquartered in Nevada are some obvious examples of the intuitive statement: the attractiveness of business policy affects where businesses organize on a macro scale. A recent example is Washington state -- already a finance averse state -- which added complex cryptocurrency broker dealer requirements in 2017 and overnight, most of the reputable exchanges serving US customers except Coinbase closed down operations in the state[0]. The world isn't black and white -- there are more factors in the world of business than just city tax policy. Weather, labor supply, image, capital supply, access to global trade, desirability for company decision makers, and other network effects explain NYC and SV. I hope that isn't controversial. For cities that have similar 'intangibles' going for them, I'd imagine city policy makes a big difference. [0] https://www.geekwire.com/2017/new-bitcoin-regulations-shake-washington-states-cryptocurrency-industry/ https://www.geekwire.com/2017/new-bitcoin-regulations-shake-...
pjc50 8y ago
This is why the EU rules on state aid ban this practice.
- Mirioron 8y ago
  And then we add the calls to set a minimum corporate tax rate to the mix and realize that the EU does this because Germany and France don't want businesses to go to Ireland instead of them.
  - pjc50 8y ago
    Restrictions on state aid date from the treaty of Rome 1957 (https://www.nao.org.uk/decision-support-toolkit/annexes/annex-c-eu-restrictions-on-state-aid/ https://www.nao.org.uk/decision-support-toolkit/annexes/anne... ), and Ireland joined the EU in 1973. It's not about targeting Ireland, it's about creating a genuinely level playing field while ending trade wars.
    - Mirioron 8y ago
      I see. I did not know that! Although, I would still argue my point because Ireland is just a recent example. Businesses naturally go to where there are other businesses. You have to somehow offer them a better deal for them to go elsewhere. If you can't do that then you get an urbanization-like situation for businesses, except they prefer bigger and richer cities over smaller cities.
      - pjc50 8y ago
        The argument is that City A offers a discount deal for factory A to move there, so then City B has to offer a deal for factory B, and so on; whereas if neither of them had offered a deal they would both be better off. Classic prisoner's dilemma stuff. There is a tendency for industry to congregate, but better ways need to be developed to deal with that than taxpayer bribery. Within countries, Germany is substantially better at doing this ("Mittelstand") than, say, the UK. And let's not forget that Germany wasn't always the strong country, they used to be "the sick man of Europe": https://www.ft.com/content/bd4c856e-6de7-11e7-b9c7-15af748b60d0 https://www.ft.com/content/bd4c856e-6de7-11e7-b9c7-15af748b6...
tomatotomato37 8y ago
What your missing is that, thanks to globalization, those cities have to compete against cities in third world countries without nice things such as minimum wages or workers rights that tend to be viewed as burdens by most corporations. This is less an incentive to expand and more begging the company to stick to the status quo and not to bail out to Bangladesh the first chance the company gets
- omegaworks 8y ago
  > thanks to globalization, those cities have to compete against cities in third world countries without nice things such as minimum wages or workers rights How dare you question the unmitigated good that is free trade? Of course capital should be free to move wherever it pleases while labor remains shackled under kafkaesque bureaucracies. Dance for your visa puppet! Dance! I'll make sure you have as little time as possible on your hands to question my resource wars and extractive interests.
- AngryData 8y ago
  Then the obvious solution is to apply a import tax on those companies, rather than trying to bribe companies for favors. Hell it could be called a 'human rights violation tax', specifically to fight the outsourcing of jobs to abusive foreign business or assemblies.
- fzeroracer 8y ago
  Not only is that an extremely overly simplistic look at how globalization actually works, but ignores that we can't just blame globalization while doing everything in our power to kneecap growing industries in favor of ones that are dying or in the process of being automated. We should be adapting to the fact that a lot of these jobs will be automated in the near-future and/or the fact that most of these companies are more profitable than ever yet demand more and more from local and state governments.
rayiner 8y ago
> Would we not be better off as a society if business-specific tax breaks were not an option? Wouldn't that 'level the playing field'? Wouldn't it decrease the incentive for local governments to gamble the city's financial future, placing bets on the whims of corporate boards? Can someone tell me what I'm missing? The race to the bottom drives business taxes to zero, but it's not clear to me that's undesirable. Businesses are productive entities and create jobs. It's not clear to me that it's desirable to tax that. It makes more sense to simply raise taxes on the individuals who actually use those local services.
- taurath 8y ago
  OTOH businesses can also be drains on the local economy when all profit is shipped out of the community in which it’s made. If you have a factory pulling out $200mil a year in profits in your town, all it will do much of the time is not have layoffs, while the Wall Street investors get all the benefit.
  - Tempest1981 8y ago
    The fact that Gary is such a poor town seems to confirm your observation. The workers don't seem to be seeing a share of the profits.
- sublupo 8y ago
  The problem is that the taxes are zero for specific businesses. If I want to open a business in New York, I'd get nowhere near as much of a tax break that Amazon got. I agree that business taxes should be low, but they should also be consistent.
- perl4ever 8y ago
  "Businesses are productive entities and create jobs." I'm not sure of the meaning of that statement. Anybody can do something, perhaps dig a ditch and fill it in again, and file appropriate paperwork to be recognized as a company by the state. If that activity does not create more value for society than it destroys, society ought not to encourage it, even though it creates one or more "jobs".
BurningFrog 8y ago
> How is this different than the city being held hostage by the organization in question? There is a huge difference between threatening to destroy someone else's property or life unless you get paid, and to offer something beneficial if you get paid. To spell it out, the difference is that one is forced and the other is consensual. > Would we not be better off as a society if business-specific tax breaks were not an option? I'd agree with that, not least from an "equal treatment under the law" standpoint. That different companies pay different taxes depending on what deal they manage to negotiate with the government is a terrible principle. If it worked like that for regular people we'd all recognize it as corruption.
- test6554 8y ago
  Many of us do negotiate our property taxes with the government by protesting their valuation of our home/property whenever it increases from one year to the next.
neokantian 8y ago
> "Company-specific tax breaks allows companies to pit cities against each other ... Would we not be better off as a society if ..?" The real pressure does not come from cities and regions within the same country, but from abroad. Corporations have other options pretty much globally.

by glial 8y ago

sokoloff 8y ago

It's easy to craft policies that aren't business-specific per-se, but might as well be in effect. "Any employer who commits to increasing their employee base within the city by 25,000 or more employees as measured from Jan 1, 2019 to Dec 31, 2021, shall be entitled to..." "Any company in the oil and gas industry employing at least 500 workers within the town as of July 31, 2019 shall be entitled to..." It would be a level playing field in one sense. If I were willing to commit to hiring 25K workers in NYC, I too would be eligible for the same tax break as Amazon...

gilrain 8y ago
It would be a poor judge who was bamboozled by such transparent attempts to twist the meaning of the law. Fortunately they are not computers or engineers.
- howard941 8y ago
  Yet legislation crafted in such a way that it only benefits a single, known entity, is permissible. More at https://en.wikipedia.org/wiki/Private_bill#United_States https://en.wikipedia.org/wiki/Private_bill#United_States
maxxxxx 8y ago
You just created tax breaks exclusively for large companies. I would prefer to give tax breaks to many small companies that employ a few people. The big guys should be able to stand on their own.

pm90 8y ago

> tax breaks were not an option? Cue to the hoards of flag hugging, chest beating, freedom loving American cults. They will argue that its "Federal Government Dictating terms" to them. They will argue its a "violation of free speech". Any such proposal would get drowned out in that chaos. This is what happened when Austin enacted strict regulations for Uber/Lyft. But in that case they simply lobbied the Texas state government and overturned that city ordinance.

thucydidesofusa 8y ago
You missed an operative word "business specific". Most conservatives / right wingers / free marketers disdain business specific tax incentives - the common criticisms is that it opens up government to cronyism and allows the government to pick and choose winners. The former governor on Florida is on record as saying that he won't ever make a deal with a specific company but it's very important for him that Florida be so favorable to businesses-writ-large that they don't have to make deals for any specific country because Florida should be the best state for any company to do business.

lend000 8y ago

One alternative: there are no tax breaks, the company has no reason to stay in the city and leaves, and the city is much worse off financially. These kinds of tax breaks and incentives between cities create an interesting market that acts as a check against excessive taxation, similar to how consumers force competing companies to lower prices and improve products. In my opinion, the problem is when the policies very clearly benefit a small group of players (or one) and aren't accessible to the market as a whole (which is quite frequent). Some federal verbiage preventing such specialized tax exemptions would go a long way, forcing cities to compete on city-wide tax plans, rather than being able to buy one big company at the expense of smaller taxpayers that have less power to relocate or negotiate.

im_down_w_otp 8y ago
I'm not familiar with any studies which confirm this assertion (i.e. that denying onerous tax-breaks causes big enterprises to leave town), but I am familiar with several which show the opposite to be true (i.e. companies depend on the labor pool, local environment, etc. and end up staying). The inverse of your claim is also evident even in other dimensions. Both NYC and SV are extremely capital inefficient places to operate your business and scale up an organization relative to other locations. The high cost of living, commercial real estate, and upward adjusted compensation expectations, are a kind of implicit tax relative to other areas, but... that hasn't stopped nearly the entirety of the financial and tech markets from hunkering down in their respective locales for a whole variety of reasons which make that comparative nominal capital inefficiency assumed to be more than worth it by employers and investors. Can you elaborate and/or substantiate your position?
- lend000 8y ago
  The amount of location-agnostic industry (e.g. software) in Texas or the number of companies officially headquartered in Nevada are some obvious examples of the intuitive statement: the attractiveness of business policy affects where businesses organize on a macro scale. A recent example is Washington state -- already a finance averse state -- which added complex cryptocurrency broker dealer requirements in 2017 and overnight, most of the reputable exchanges serving US customers except Coinbase closed down operations in the state[0]. The world isn't black and white -- there are more factors in the world of business than just city tax policy. Weather, labor supply, image, capital supply, access to global trade, desirability for company decision makers, and other network effects explain NYC and SV. I hope that isn't controversial. For cities that have similar 'intangibles' going for them, I'd imagine city policy makes a big difference. [0] https://www.geekwire.com/2017/new-bitcoin-regulations-shake-washington-states-cryptocurrency-industry/ https://www.geekwire.com/2017/new-bitcoin-regulations-shake-...

pjc50 8y ago

This is why the EU rules on state aid ban this practice.

Mirioron 8y ago
And then we add the calls to set a minimum corporate tax rate to the mix and realize that the EU does this because Germany and France don't want businesses to go to Ireland instead of them.
- pjc50 8y ago
  Restrictions on state aid date from the treaty of Rome 1957 (https://www.nao.org.uk/decision-support-toolkit/annexes/annex-c-eu-restrictions-on-state-aid/ https://www.nao.org.uk/decision-support-toolkit/annexes/anne... ), and Ireland joined the EU in 1973. It's not about targeting Ireland, it's about creating a genuinely level playing field while ending trade wars.
  - Mirioron 8y ago
    I see. I did not know that! Although, I would still argue my point because Ireland is just a recent example. Businesses naturally go to where there are other businesses. You have to somehow offer them a better deal for them to go elsewhere. If you can't do that then you get an urbanization-like situation for businesses, except they prefer bigger and richer cities over smaller cities.
    - pjc50 8y ago
      The argument is that City A offers a discount deal for factory A to move there, so then City B has to offer a deal for factory B, and so on; whereas if neither of them had offered a deal they would both be better off. Classic prisoner's dilemma stuff. There is a tendency for industry to congregate, but better ways need to be developed to deal with that than taxpayer bribery. Within countries, Germany is substantially better at doing this ("Mittelstand") than, say, the UK. And let's not forget that Germany wasn't always the strong country, they used to be "the sick man of Europe": https://www.ft.com/content/bd4c856e-6de7-11e7-b9c7-15af748b60d0 https://www.ft.com/content/bd4c856e-6de7-11e7-b9c7-15af748b6...

tomatotomato37 8y ago

What your missing is that, thanks to globalization, those cities have to compete against cities in third world countries without nice things such as minimum wages or workers rights that tend to be viewed as burdens by most corporations. This is less an incentive to expand and more begging the company to stick to the status quo and not to bail out to Bangladesh the first chance the company gets

omegaworks 8y ago
> thanks to globalization, those cities have to compete against cities in third world countries without nice things such as minimum wages or workers rights How dare you question the unmitigated good that is free trade? Of course capital should be free to move wherever it pleases while labor remains shackled under kafkaesque bureaucracies. Dance for your visa puppet! Dance! I'll make sure you have as little time as possible on your hands to question my resource wars and extractive interests.
AngryData 8y ago
Then the obvious solution is to apply a import tax on those companies, rather than trying to bribe companies for favors. Hell it could be called a 'human rights violation tax', specifically to fight the outsourcing of jobs to abusive foreign business or assemblies.
fzeroracer 8y ago
Not only is that an extremely overly simplistic look at how globalization actually works, but ignores that we can't just blame globalization while doing everything in our power to kneecap growing industries in favor of ones that are dying or in the process of being automated. We should be adapting to the fact that a lot of these jobs will be automated in the near-future and/or the fact that most of these companies are more profitable than ever yet demand more and more from local and state governments.

rayiner 8y ago

> Would we not be better off as a society if business-specific tax breaks were not an option? Wouldn't that 'level the playing field'? Wouldn't it decrease the incentive for local governments to gamble the city's financial future, placing bets on the whims of corporate boards? Can someone tell me what I'm missing? The race to the bottom drives business taxes to zero, but it's not clear to me that's undesirable. Businesses are productive entities and create jobs. It's not clear to me that it's desirable to tax that. It makes more sense to simply raise taxes on the individuals who actually use those local services.

taurath 8y ago
OTOH businesses can also be drains on the local economy when all profit is shipped out of the community in which it’s made. If you have a factory pulling out $200mil a year in profits in your town, all it will do much of the time is not have layoffs, while the Wall Street investors get all the benefit.
- Tempest1981 8y ago
  The fact that Gary is such a poor town seems to confirm your observation. The workers don't seem to be seeing a share of the profits.
sublupo 8y ago
The problem is that the taxes are zero for specific businesses. If I want to open a business in New York, I'd get nowhere near as much of a tax break that Amazon got. I agree that business taxes should be low, but they should also be consistent.
perl4ever 8y ago
"Businesses are productive entities and create jobs." I'm not sure of the meaning of that statement. Anybody can do something, perhaps dig a ditch and fill it in again, and file appropriate paperwork to be recognized as a company by the state. If that activity does not create more value for society than it destroys, society ought not to encourage it, even though it creates one or more "jobs".

BurningFrog 8y ago

> How is this different than the city being held hostage by the organization in question? There is a huge difference between threatening to destroy someone else's property or life unless you get paid, and to offer something beneficial if you get paid. To spell it out, the difference is that one is forced and the other is consensual. > Would we not be better off as a society if business-specific tax breaks were not an option? I'd agree with that, not least from an "equal treatment under the law" standpoint. That different companies pay different taxes depending on what deal they manage to negotiate with the government is a terrible principle. If it worked like that for regular people we'd all recognize it as corruption.

test6554 8y ago
Many of us do negotiate our property taxes with the government by protesting their valuation of our home/property whenever it increases from one year to the next.

neokantian 8y ago

> "Company-specific tax breaks allows companies to pit cities against each other ... Would we not be better off as a society if ..?" The real pressure does not come from cities and regions within the same country, but from abroad. Corporations have other options pretty much globally.