University of Georgia economics professor Jeffrey Dorfman tries to warn state and city leaders against enticing Amazon to locate its second headquarter campus in their borders. “The math won’t add up” for the location that puts together the “winning” incentives package.

“The winner of HQ2 will almost surely be a financial loser,” Dorfman writes.

Yet if the cities and states in the running do the math they will find that a deal anywhere near that rich makes no economic sense. From a taxpayer point of view there is no hope of recovering the money in taxes from any economic growth generated by HQ2.

As Dorfman explains in detail:

  • It will be hard to collect hardly anything in corporate income tax revenues “given the ability of a company such as Amazon to shift the location in which it declares profit”
  • In addition to free land and infrastructure improvements and other giveaways, Amazon is going to exact tax breaks and credits such that it will be exempt from paying any property taxes.
  • Personal income tax revenue and sales tax revenues to be expected from those 50,000 Amazon workers would still not compensate for tax losses elsewhere and (because they’re not designed to make up for the losses in property taxes, etc.) wouldn’t account for costs they would impose on state and local governments when “they drive on roads, they ride mass transit, they need police and fire protection, they require housing which needs inspecting and permitting, they even send kids to school”
  • Even attracting other businesses and growth can’t possibly overcome the massive heft of the giveaways Amazon is seeking; i.e., “if Amazon gets a few billion in tax breaks and subsidies, there is no way even indirect, follow-on job growth will be enough to make such a deal a good idea”

What Amazon would require from North Carolina is so unprecedented, it would require massive changes in state law (even despite the new mega-incentives for “transformative” projects) and a complete reorganization of transportation systems.

Beware the race to the bottom

I wrote this immediately after Amazon issued its North America–wide request for proposals, warning North Carolina state and local leaders against it:

Think how enticing a monster Powerball jackpot is to the poor and desperate. This calculated Amazon announcement is just as enticing to policymakers, economic development types, and others who believe economic growth comes from wise central authorities pulling the right levers

Oh, if only we can pull the incentives lever hard enough to win Amazon!

Responsible policymakers should see this for what it is: a race to the bottom. A trap. A sure bet for community buyer’s remorse. Why? Consider the winnings! It would mean so much to the community!

Here’s why: the bidding is sure to get out of hand quickly. Bids from public officials with other people’s money who feel as if they are competing with their peers across the entire continent and will sacrifice time-honored, empirically tested principles of economic growth to chase a gaudy new proxy for economic growth? What would constrain them?

It’s inevitable that whoever “wins” will overpay. It’s also inevitable that Amazon will be the ultimate winner.