John Locke Update / Research Brief

Media: Tax Cuts for Corporations OK for Amazon, Not Others

posted on in Economic Growth & Development, Spending & Taxes
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The word "Amazon" written in vintage wooden letterpress type.

Earlier this month Amazon announced it was looking for a second headquarters in North America. The company said it would involve 50,000 jobs and $5 billion in investment. It is unquestionably a big deal.

Who is Amazon? Not in terms of retail but in terms of the public sector, who is Amazon?

It’s a firm with a major competitive advantage in securing government giveaways:

Amazon’s expansion can be in part attributed to its economic development team. Responsible for its site selection process and the execution of economic development, infrastructure, and tax-related incentive negotiations, applications, and legal incentive agreements; the well-oiled economic development team has secured millions of dollars in tax credits and incentives across the nation for the online retailer.

So this announcement wasn’t a mere statement of intent. It was a request for incentives proposals from every city, state, and province across the whole of North America.

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.

Amazon’s amazing transformation of media outrage over giveaways to large corporations like Amazon

That’s a testament to Amazon’s superior ability in the political arena. So, too, is the fact their allure extends beyond just North Carolina policymakers, including Gov. Roy Cooper and Commerce officials.

They’ve even captivated media who used to be reliable sources for anger against tax cuts if they help big business, irrespective of whether they help everyone else. Not any more.

For example, Capitol Broadcasting Company (parent company of WRAL) made its view on tax cuts for large corporations quite clear in this April 21 editorial, “Running our state into the ground“:

And what of tax cuts?

The way to grow the economy is to get more money into the hands of consumers. Jobs are created when consumers are demanding more products. A car manufacturer does not make more cars when it gets a tax cut. It makes more cars when consumers can buy more cars.

North Carolina tax cuts have primarily benefited large corporations and high-income people. There is little evidence that this grows the economy. (We don’t believe in trickle down any more than we believe in the Easter bunny.)

Now? A Sept. 12 editorial sees the Amazon project as “astronomical.” There’s no price too large for the state to pay. The only danger CBC sees is if Republican leaders in the General Assembly don’t go along with Gov. Cooper’s promise to “relentlessly pursue every opportunity” to bring Amazon here.

After all, it could take legislation “to meet the criteria Amazon has outlined.”

What demands would this particular large corporation acceptably dictate to North Carolina’s governor and General Assembly? The sky’s the limit, friends. CBC quotes Research Triangle Park Foundation vice president for marketing and communications Michael Pittman on that count:

Amazon’s specs also seek information on incentive programs available for the project at the state and local level — for land, tax credits, workforce grants and other needs. A project of this scale far exceeds the kinds of current incentive limits. Lawmakers need to rethink those limits and seize an opportunity that may not come our way again for years.

One wonders if CBC knows they can get free shipping if they sign up for Easter Bunny Prime.

The editors of the News & Observer were making yet another case against tax cuts on May 8. Look what aspect they found especially upsetting:

Republicans in charge speak mainly of tax cuts for business and the “middle class,” but that middle-class terminology is often deceptive. Most GOP tax cuts help the wealthy more than they do the middle class, of course, and the business tax cuts already have been excessive in a state that has long ranked one of the most accommodating for business. …

And it’s interesting that Berger speaks of “your money and your bank account” after being so generous with tax cuts for business, giving up money that might have gone to help all the families of North Carolina. …

And yet given the opportunity to really do something for all, Berger and his sidekick and their mates look only to help business and the wealthy. So that’s what they are going to do.

This isn’t governing. This isn’t smart stewardship of the public’s money. It’s wasting the public’s money, throwing it away for the benefit of a few. This is lackluster, shortsighted government, not steering the state through the early 21st century with foresight.

Set aside the daft notion that taxes not levied is “throwing away” the “public’s money.” Just look at that indignation.

Now? On Sept. 18, the newspaper’s business section featured a highly favorable article about North Carolina joining the Amazon business war. It was originally entitled “North Carolina has incentives in place for Amazon competition“:

Amazon’s plan to build a second headquarters somewhere in the United States, setting up a ferocious nationwide competition, is just the kind of project the North Carolina legislature had in mind when it established special financial incentives this year.

A provision in the state budget in June provides enhanced incentives for companies that invest at least $4 billion and create at least 5,000 jobs. In return, these “transformative projects” could receive full refunds on their tax bills and the state can chip in money to help develop the sites.

Full.

Refunds.

On their tax bills.

For the biggest of big businesses.

Companies that qualify as transformative are reimbursed for up to 100 percent of the withholding taxes from the new jobs they create, instead of the 75 percent that is typical with a JDIG [Job Development Investment Grant]. In addition, those taxes are reimbursed for up to 25 years rather than the usual 12 years.

For 25 years.

That’s a quarter-century.

Transformative projects also can receive up to $50 million for a project’s infrastructure such as water, sewer, and rail access, with the money coming from a reserve account in the state’s general fund. There is $80 million in the reserve fund so more than one large project could be awarded.

In addition, the One North Carolina Fund can award up to $5,000 per year, per job, for up to five years.

Paid for by other taxpayers.

Gov. Roy Cooper’s administration has the authority to decide which projects are worthy of receiving that money. His budgeting office and the Department of Commerce make that call.

That shows Democrat Cooper and Republican legislative leaders working together, administration officials say.

I’m suddenly reminded of the phrase “Berger and his sidekick and their mates” and all the high editorial dudgeon that followed.

North Carolina does have a great business climate to offer Amazon and anyone else

As of this writing, that N&O piece is now titled “NC has already sweetened the pot for Amazon-size jobs and spending.” I would make that exact case, and I have, though not at all the way the newspaper did.

North Carolina’s leaders have cut taxes, spending, and red tape. Those are empirically backed policies, so it is no wonder that as the state has lowered the cost of doing business here in general, we’ve seen greater growth, jobs, and investment.

It’s worked so well that now North Carolina is considered a national model for tax reform.

Those reforms work like economic incentives, but not at the expense of the rest of the taxpayers, existing businesses, and job seekers. So it’s not a shell game.

But it also doesn’t present politicians with the opportunity to be lauded at ribbon-cutting ceremonies and feted with awards from cash-flush recipients of their targeted incentives.

Cutting taxes and red tape for all is an all-comers incentive.

That means it’s good for untold numbers of business ventures, jobs, and investment across the state. Most of them get overlooked because 99 percent of all businesses are small businesses, sole proprietorships, and “Mom & Pop” ventures. They create jobs and power the economy — but they do it quietly.

They don’t create the big splashy headlines when they do, but their impressive effects become evident over time.

Here’s the rub: If the media, the governor, and legislative leaders believe that North Carolina’s taxes are too high for the likes of Amazon, then they’re too high for Mom & Pop, too.

It’s a good thing that Gov. Cooper and our media so clearly recognize that tax cuts would stimulate investment, job creation, and economic growth here. Here’s hoping they will make the logical next step and promote tax cuts across the board, not just for the largest corporation they can find.

Jon Sanders is an economist studying state regulations, that spreading kudzu of invasive government and unintended consequences. As director of regulatory studies and research editor at the John Locke Foundation, Jon gets in the weeds of all kinds of policy… ...

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