Amazon’s decision to cancel a headquarters project in New York should serve as a lesson for cities large and small. Providing tax breaks in exchange for job creation is a fragile endeavor that requires foresight and caution.
In November, Seattle-based Amazon, one of the world’s largest retailers, announced it would build satellite headquarters in New York City and northern Virginia. Officials said the New York site would create 25,000 jobs directly and 15,000 jobs indirectly in exchange for $3 billion in tax incentives. But pushback from critics led company officials to announce last week that they were scuttling the New York plans.
There is nothing new about incentives designed to lure jobs. In one fairly recent example in this state, the Legislature in 2013 approved tax breaks for Boeing that are expected to be worth $8.7 billion over 27 years in exchange for the company assembling the 777X in the state. In 2017, the deal saved Boeing $227 million on its tax bill. And still, the company has eliminated more than 12,000 Washington jobs over the past five years.
In a more recent example in another state, Wisconsin officials provided $10 billion in tax breaks to lure Foxconn. The Taiwanese electronics giant promised to build a manufacturing plant, but since has scaled back its proposal. Wisconsin residents might wind up dishing out tax breaks worth as much as $1 million for each job created.
By comparison, New York was slated to get a bargain with Amazon — even though the company’s claim that the jobs would have an average salary of $150,000 seems specious. But the fallout that led to the withdrawal reflects changing dynamics and increasing tension between local governments and big business.
Washington stands to benefit from the decision if some of the planned growth is relocated to Amazon’s existing headquarters, but The Seattle Times writes editorially: “Seattle City Hall has done its best to stifle this job creation, creating a template for how organized labor and shortsighted politicians can kill a golden goose, by demonizing a company like Amazon and creating a hostile climate for job creators.”
Last year, the Seattle City Council voted to impose a corporate tax for each employee at large companies. When opposition led the council to rescind the tax less than one month later, city leaders were reminded that companies employing thousands of people are not the enemy.
But at the same time, growing wealth disparity throughout the United States is fueling mistrust of large corporations. The Institute on Taxation and Economic Policy last week reported that Amazon has paid no federal tax the past two years, rather than the statutory 21 percent. Following profits of $11.2 billion in 2018, the company received a federal corporate tax refund of $129 million thanks to various loopholes. The previous year, Amazon received a federal refund of $140 million. That is a sign of a broken system, and it points out the absurdity of corporate tax cuts that were a centerpiece of the 2017 tax overhaul.
That is not the concern of cities trying to lure employers, but it is part of the gamesmanship played by corporations. And it affects even midsize cities. Vancouver provides tax breaks as an incentive for companies that have at least 200 employees and that pay higher-than-median wages.
The plan seems reasonable but will require frequent reassessment to ensure that it is working as intended. As New York’s experience with Amazon demonstrates, tax breaks can be precarious for cities.
