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Commentary

Amazon HQ2 is the Same Old Story – War

Amazon recently announced they will be adding close to 50,000 jobs at a new headquarters 2.0, and the news has economic developers in an all out frenzy.

The whole process provides an opportunity to show how economic development incentives are a form of economic redistribution to corporations from the very citizens that economic development organizations claim to serve, and ultimately do not grow the economy.

Over twenty years ago the states decided that rather than working together to grow the economy, they would engage in war against each other to scrape the newest gains of economic growth off the crust of the proverbial economic “pie” by conferring any preferential government treatment possible to expanding firms, though mainly through tax breaks (incentives).   Economic development agencies argue that these investments could capture disproportionately large chunks of economic expansion as measured by increases in tax receipts.

How advocates evaluate government economic incentive programs – the ratio of tax revenue spent or forgone to tax revenue received – is part of the problem.  If more tax revenue comes in than goes out, the economists claim the government’s investment generated “new” economic activity that wouldn’t have occurred without government, and report “positive ROI” to the taxpayer and a successful economic development program.  Myself and others have written about how it is empirically next to impossible to separate what economic activity would or would not have occurred with or without incentives, so the whole metric is somewhat useless; Nonetheless, even positive ROI models severely misreport the true impact on the taxpayer.

Over the last 35 years, state and local governments have given away over $64 billion in tax dollars just in megadeals like Amazon HQ2 – all while hiking citizen per capita taxes by 480% – from $801 per citizen in 1977 to $4,675 per citizen per year by 2012.  All of the stress from normal population growth on public systems, as well as rising costs in what are mostly state government run education and healthcare institutions, is being placed on the working man’s tab while selected corporations pocket millions of dollars not earned from customers, but taken from taxpayers and given to them by state and local agencies.

Citizens are paying more taxes than ever before, paying more for education and healthcare than ever before, and yet the taxpayers are being told these economic programs are giving them a positive ROI because government has seen a boost in sales/property tax revenue that may or may not be attributable to them?  Maybe for the government coffer and the firm getting the tax benefit there is ROI, but there has been none (if not large negatives) for the working taxpayer because of these programs.

But are there actually more jobs or economic activity because of these programs?

I could cite several studies which show these programs don’t “create” jobs, but there is a simple logic which demonstrates the point.  The very existence of the Amazon RFP guarantees that some job growth is going to occur.  Whether that growth occurs in Dallas, Denver, Detroit, or Disneyland, Amazon is not going to create more total jobs—the only question is where they will be.

Whether the incentive is $5 dollars or $5 billion dollars, Amazon is going to hire the same amount of people they need to run their business regardless.  No more or no less.

Some studies suggest that only 3% of firm expansion projects would have been cancelled without incentives, and only 30% would have moved to another state anyways.   Logically, some 70% of the incentive money is being wasted or simply re-arranging economic growth at the expense of local working taxpayers, as discussed above.

Even if incentives are successful in luring an establishment and “creating” local job openings, there are problems with incentive policies.  These jobs can be filled by imported workers from out of state, which doesn’t help local job seekers.  The tax benefit the firm is receiving can act as a local competitive advantage and displace current local jobs, which doesn’t provide net local job creation anyways.  And firms can still collect on tax benefits without creating promised jobs or lock up the government in lengthy “clawback” settlements for taxpayer money.   No one knows the real numbers, but the number of cases where incentives successfully lured a firm and netted more jobs due to those incentives measured against the total amount of incentives money spent probably makes already high  “cost per job” estimates go through the roof.

In the end, it is disappointing that the states have chosen war over collaboration.  Rather than spend money trying to understand policies which create conditions favorable to the rise of fabulous businesses like Amazon, states and locales have chosen the easy way out: Wait for someone else to grow it, write a check, get the jobs, take the credit – much simpler than understanding the 21st century dynamics of firm formation and expansion.

Certainly, the presence of Amazon HQ2 will transform a local economy, but to whom exactly is the benefit and to whom the costs? Below the radar and the excitement of HQ2 is the working class of America that silently foots the bill for the whole charade of “economic development.”

Spence Purnell is a policy analyst at the Reason Foundation, where he works on pension reform, Florida policy issues and economic development.

Prior to joining Reason, Spence worked as director of business development at Florida startup Dealers United and as an analyst for the state of Florida's Executive Office of the Governor (Florida Gubernatorial Fellowship).

Spence graduated from Stetson University with a bachelors degree in political science and is working on an MPA at Florida State, where his research has focused on database infrastructure and analytics, economic development, and policy evaluation methods.

Purnell is based in Florida.