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.
While most people would argue that tax breaks and other subsidies can have outsized rewards in the long run, I think the disparity between these corporate handouts and the public service needs is striking. Cities are giving away hundreds of millions to companies which might not even deliver on their promises, while local programs with proven value are asking for funds in the range of half a million to several million and being denied. Resource allocation has never been our strong-suit as a society, but this is just depressing. Surely we can do better to balance the needs and desires of corporations with those of normal flesh-and-blood human beings?
I absolutely agree. Essentially, corporations with huge revenue streams get major tax advantages that are not available to local companies in exchange for "creating jobs".
It turns out that each of those jobs is so costly to taxpayers that the only real benefit is for the politicians that announce the "partnerships" (and the receiving company, obviously).
Here's a couple of interesting articles on the matter:
Its interesting to note I've worked at two companies who were attempting to lure cities into giving them tax breaks for building larger campuses, or other structures. Both times since they didn't get their tax breaks, they dumped the projects.
So no, not all cities or municipalities cow tow to large corporations when it comes to handing out tax breaks or incentives.
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 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.
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.
typically these massive corporate incentives are just a part of the corporatist strategy of pitting all American cities against each other in order to get a company to set up shop there (look no further than Amazon's scheme from this summer accepting 'applications' (per-se) from different cities for HQ2 - many suspect this is just a scheme to force Seattle into more favorable tax incentives, etc which they previously were unwilling to offer).
Whether the city's leadership truly believe the corporation will aid them is up in the air, most of the time the city loses out, and the corporation leaves when the incentives dry up. If you're optimistic, than many city council members just get unlucky because it is 100% 'beneficial in theory and just not in practice'. If you're a little more skeptical, given this corporatist strong arming happens nationwide constantly, it is just the reality of corporations exploiting cities.
The corporations do not hold all the cards in all situations.
Take Austin at the moment, the "It" city that all the Cool Kids are flocking to, the darling of the business press for growth stories. Its population growth rate is faster than many cities much larger than it, by both absolute numbers and percentage growth. It is continuously growing a deeper pool of skilled knowledge worker talent; not nearly enough to rival giants like SV in tech, NYC in finance, BOS in bio, or Shenzen in hardware mfg., but enough to put it firmly on the heat map of "lots of eligible, skilled workers". Compared to those category-leading cities, the cost of housing in equivalent neighborhoods is cheap (though make no mistake, already out of reach of middle class households). There should be no tax concessions from a city in such a hyper-growth situation.
The messaging that "taxpayers have to give corporations a break for the jobs else the corporations take their ball and go elsewhere with the jobs" is a canard. These tax break arrangements last 5+ years, sometimes decades, sometimes effectively in perpetuity with constant re-negotiations the norm as agreements come up to expiration. There is often no, little, or lax monitoring of benefits received for the consideration. I haven't heard of big municipalities negotiating performance bonds, nor breakup fees. Some deals won't even "break even" until long after an agreement expires, so they need an investment horizon where the corporation stays after an expiration for anything to pencil out. Typical financial traders call parties negotiating these kind of terms "chumps" and "muppets" on days they're feeling charitable; NSFW pejoratives are used more often.
Many of these tax break arrangements are thin facades over what are effectively irrationally-expensive political bribes footed by taxpayers for sitting politicians to claim PR points in the political arena, especially for re-election fodder, frequently negotiated under conditions and terms that are effectively between private parties, and in representative systems frequently with little direct access by citizens to vote up or down. On the corporation side of the table, they pay a professional negotiator and get a return in the orders of magnitudes range that drops straight to the bottom line, Other People's Money else pays for the deal, in the vast majority of cases they can lay off and outsource/offshore the ostensible jobs that the jurisdiction was going to benefit from without penalty, or even close up and move away to a better offer before the arrangement is even expired and the jurisdiction even breaks even. It's free money for the corporations, and if taxpayers are foolish enough to sign off (by not voting out or better yet insta-recalling politicians who arrange these deals) on this, the taxpayers only have themselves to blame. Shareholders in the corporations should be upset that these deals suck up finite executive team time; no matter how much is sent to the bottom line, it's a one-shot that doesn't represent the highest and best use of that time, while the same execs spending the time putting in place revenue generators that grow the top line is far more valuable.
There are many (I'd go as far as to say most, and in many specific instances, all) on the corporation side of the negotiating table who do have good intentions and believe the ostensible messaging, but the financial returns history of these deals is so bad that in an open market the deals would have long since been punished with appropriate interest rates for the high risks they bring to the buyers (the taxpayers). I'd say the same about the politicians, as I think most of these deals are a case of a tragic mix of wishful thinking, inexperience with evaluating complex economic policy, cognitive biases, and go-fever combining into a perfect storm to create poor deals.
I don't really understand that even booming areas like Northern VA and NYC have to give a company subsidies to settle there. I can see this as a tool to help disadvantaged areas but I don't think we should subsidize wealthy companies to settle in already wealthy areas.
As an ex-small business owner I would much prefer if little companies got more incentives.
I guess ideally people who live in the city pay for such subsidies through various municipal taxes. People who do not value this policy and choose to live in a different city that aligns with their values would not pay for it. Everybody gets what they want.
If it's made illegal to subsidize individual corporate interests through tax incentives, direct subsidies, what else can be done?
Its really not that hard to make the incentive for all companies but write it specifically so it only fits one. Ask any HR Director writing job descriptions that they intend to hire an H1B for. We have plenty of laws that are rather easy to get around. It really would take some serious changes in how city councils are allowed to operate.
And who is going to limit them? Cities are not self limiting. Maybe a petition in states like California and North Dakota, but certainly not the state government since those politicians get to sit in the box seat too.
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.
If it's made illegal to subsidize individual corporate interests through tax incentives, direct subsidies, what else can be done?
Zoning? That to me is actually a legit thing. If Amazon wants to build 5 buildings next to downtown, on land that isn't currently zoned for that - it makes perfect sense to consider that. For any company frankly. It's the cities job to accomodate various interest with zoning.
So what else is at a politicians disposal?
No much.
Maybe guaranteed contracts ... but even then, that's not such a bad thing so long as the company is getting value. Moreover, I don't think cities are big users of any of their local companies things.
Bombardier always threatens to leave Montreal as they try to get giveaways elsewhere ... it's not like Phoenix Arizona, which was going to give Bombardier a big chunk of cash to open a factory there is going be buying jets or snowmobiles.
So I think that 'making it illegal' would definitely quash most of this activity.
And FYI if politicos try to bend the rules, they open themselves up to lawsuits.
A lot of mayors did that. Truth be told, even New York City's mayor did that.
Problem is that it doesn't make a difference. Lots of other mayors will give the incentives. And, as in the case of NYC, sometimes the governors will come in and override the decision not to give subsidies anyway. (Although in the case of NYC it likely wouldn't have really mattered. I suspect they would have won the HQ2 subsidies or no subsidies.)
Because the Goliaths bring more to the table in terms of revenue and bragging rights for politicians who can say they brought [insert high number here] jobs to their city. I'm skeptical of these deals and not sure the math works out for the average taxpayer but I'm not surprised that cities are operating this way.
From a city's perspective, why should companies of vastly different sizes, impacts, and expected lifetimes have the same leverage in terms of negotiating tax benefits today? Companies are getting the same "deal" in the sense that they will be eligible for these benefits when they bring enough to the table to make a city desperately want them.
I'm not saying it's just, but creating the "same deal" for all companies is only likely to occur if it's federally enforced - otherwise there will always be cities willing to offer these incentives.
Right. I don't think it's possible to make it profitable without a corporate sponsor or heavy subsidies from the local city government for the first few years.
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