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.
What your company does with its own capital is your company's business. What the mayor does with the city's taxes is everyone's business. Picking winners and losers on any grounds other than competitiveness isn't in the taxpayers' interest... or if it is, it needs to be very clearly justified.
Exactly. It's the economics version of the Prisoner dilemma. First city to give up the tax breaks gets the jobs, but to truly win, everyone has to say "build here if it's right for you. You're not getting any incentives from us."
I see your point and agree that from the fairness point of view this is not quite right. However, I do not see fairness as relevant in this context. Unless it is Walmart that is getting tax breaks for building a bunch of stores in NYC, local businesses do not oppose big companies getting incentives to move in.
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.
The problem is that the companies get municipalities to compete to provide the best incentives package. With sufficient competition and assuming well meaning, rational government officials, the winning municipality will have to reduce their "margin" (new tax dollars - incentives) down to a very small amount. These incentives often require the government to take out large loans that they will be paying down for decades before realizing any actual new "profit."
Then factor in the fact that their will always be some municipalities with government officials who are willing to overspend (other people's money) for personal political points. When they win an RFP for a big factory, sports team/stadium, movie production, or corporate headquarters they get to have a flashy press conference touting all the jobs. This helps them in their political career which is often over well before the actual net value of the deal can be realized in 20 or 30 years.
And once again the law of the excluded middle strikes. No, the only two options are not the ones you suggest. The other option, that you conveniently ignore, is that cities build a good infrastructure that attracts talent and the businesses come to either serve the talent or employ the talent -- no subsidy needed.
By now there must be entire libraries, or at least large warehouses, filled with case studies from HBS and similar schools that show state and municipal tax incentives are ALWAYS a bad deal for the city and state finances. The only purpose they serve is to make a politician appear effective and to enable that politician and his or her cronies to collect a bit of graft.
All of the money is lined up to take from the state/city coffers and resources. It's 'free' 'other peoples money' to all of these companies. Why would anyone want to play the consistent losers side?
It should be illegal for municipalities to throw huge tax breaks at companies so they don't have to fight to the death for each and every scrap.
This should also apply to stadiums where, for reasons I cannot even fathom, small cities throw billions into a building that they don't own, that has an astonishingly short life-span, and for which they derive very little in the way of actual benefits.
From the perspective of the whole country, perhaps we do want to reduce municipal competition and outright prohibit giving expensive handouts to bribe companies to pick their location.
From the perspective of a city, giving $x so that the HQ gets built there instead of some other city might make sense.
From the perspective of the whole nation, the notion of handing out large amounts of money to gain taxes in location A and lose taxes in location B is clearly ridiculous - let the company pick whatever city is most competitive without the handouts, and if some other city wants that HQ, well, they need to provide better services, not just a discount (which essentially is a loss for the combined coffer of all the governments), unless the gov't "one level up" has considered that it's better for national interests that this area needs to be subsidized above others.
For any single city it may make sense to underbid other cities, but for all cities together it makes sense to cooperate/collude so that underbidding doesn't happen.
Well it may seem fine, however considering that taxes are funding the city's purchases, then it is a bit unfair to the other bidders who are therefore at a disadvantage.
It's inevitable that tax subsidies, if available, will go to companies that can negotiate the best for them. Large enterprises have more lobbying power, and more ability to play cities against each other. So I think there's little hope of city officials finding the best corporate citizens to subsidize.
There's a third option: forbid states and municipalities from offering incentives to individual organizations like this.
If the company wants to move to a location (or stay at one) to be there, fine; but it shouldn't move (or stay) because that location gave it the best bribe.
But the chosen city would win even more if they were to cooperate. Sure, the cooperation would quickly break down but that is why the federal government should decide on such benefits (basically to ensure companies stay within the country, if that is deemed beneficial) rather than local government. It’s for me mindbaffling how anyone believes HQ2 would bring back billions of USD - even if you include secondary and tertiary effects
I think economic competition between cities can be a healthy thing, but these sweepstakes style contests for things like corporate HQ’s, sporting teams/events, etc seem to usually get really out of hand. It feels like there’s some committee within a government who’s only goal is to win the prize. Whether the people of the city/state/whatever actually _want_ to win is entirely beside the point.
The Fresno example is especially disturbing. I’d really like to read a constitutional analysis of that kind of thing, it feels like a vast overreach of authority to offer so much autonomy to Amazon.
My point: If the city decides the breaks are worth it, then the city has ended up ahead.
Your point (I think): It's competing with other cities and taking less tax in doing so. So it may end up _less_ ahead than if there were no competition. Since every city is doing this, it makes sense to keep under-cutting other cities until the net-gain is effectively just larger than zero.
Nobody forces the city to participate or offer incentives. This article advocates that they shouldn't.
A city should be clever about its incentives and make them align with what the company wants so the outcome isn't so zero-sum.
Many cities do this with zoning - only allowing waterfront building permits if the developer also builds parks or whatever. These increase the property-values for the developers while paying for a public-good that everyone can use.
Something similar here may be to offer tax credits toward infrastructure near the campus. E.g. don't demand the taxes directly but instead force the company to build new roads.
This is more or less an accounting-trick of course, but imho it's a lot less zero-sum and actually forces the company to consider how their incentives (or requirements) will actually benefit them.
If you prohibit all tax-incentives, cities are effectively forced to pre-build or promise services to make themselves attractive to companies. This can lead to huge amounts of waste (4-lane roads that could have been 2 for example) and cities defaulting on bonds to build such things when the company ends up choosing another city etc. I don't know if this is much better than requiring clever accounting.
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