Views on the News: Amazon Headquarters
A Jan. 31 Washington Post article detailed the lengths to which American cities are going to become the site of Amazon’s second headquarters. Cities like Baltimore and Newark have signaled they are willing to fork over billions of dollars in taxpayer money in the form of subsidies and tax cuts to win over Amazon CEO Jeff Bezos. Supporters view this as a worthwhile investment, while detractors allege that Amazon would pocket the money and leave its host penniless. Should cities be willing to put taxpayer money on the line to attract big businesses like Amazon?
Prof. George Hall (ECON)
My guess is that Amazon already knows where it wants to locate its HQ2. This whole exercise is designed to persuade mayors and governors to transfer other people’s money straight into the pockets of Amazon’s shareholders. Amazon has nothing to lose from this “competition,” and as far as I can tell their strategy is working beautifully. Amazon states that it is looking for a site with a stable and business-friendly environment, sound infrastructure, a diverse population, excellent institutions of higher education, strong local schools, and plenty of recreational opportunities. My advice to state and local leaders is to invest in building communities with these characteristics and they will attract businesses without taxpayer giveaways.
Prof. George Hall (ECON) is the Fred C. Hecht Professor of Economics.
Vidit Dhawan ’19
Although cities will be able to increase employment opportunities for their citizens by attracting Amazon, this is still not a good investment. Firstly, Amazon may look to exploit workers and hire workers who are willing to work for a much lower wage. Secondly, since Amazon is a private company and its primary motive is to earn a profit, Amazon may look to gain a higher market share at the expense of other small retail outlets. More importantly, subsidies and tax cuts should be used to benefit low paying segments such as agriculture and infant industries, to help them become more competitive,and should not be provided to well established businesses. By doing this, the decisions will be more equitable. Lastly, large companies like Amazon may also interfere with the political decisions, which will again make Amazon better off at the expense of other smaller businesses.
Vidit Dhawan ’19 is the president of Coapital and the Class of 2019 senator.
Alex Friedman ’19
This is a tricky cost-benefit problem. Obvious as it may sound, cities need to determine exactly how valuable such a business would be to their image and economy, and how best to turn that value into an offer. My home city of Austin, currently on the short-list for this new Amazon facility, has offered little in the way of tax incentives, but has presented a case for why Amazon would be better off associating itself with the Austin brand. Do I think that cities should offer tax incentives? Not if they don’t have to, but they should keep the option. There are better things that money could buy, like improved infrastructure, public works and assistance for local businesses, who have a better track record of keeping profits local. Cities with these desirable amenities are more empowered to make demands of big companies, rather than the other way around.
Alex Friedman ’19 is a double major in Politics and Near Eastern and Judaic Studies, with a minor in Business.
Brandon Stanaway ’19
Each state and local economy has its own unique fiscal circumstances and thus the effects of offering Amazon corporate tax credits will impact each city differently. Before assuming that drawing HQ2 to the city near you will bring an economic boom, there are externalizations that must be considered. Does a city currently have the infrastructure to support the influx of people and business that will follow? Is there a readily available workforce? The impact of federal corporate tax rates, taxes on dividends, capital gains and interest payments on the business? Ultimately, cities providing these corporate tax credits will not reap the expected economic benefits. Cities will forgo tax revenue that could be used to fund the public education “formula,” increase state-employed work force, give raises to public employees, invest in infrastructure improvements. The tax credits can crowd out lower income individuals not benefitting from new business by raising property values and increasing local price inflation. Instead these cities could offer tax credits to local small businesses, providing people with diverse skill sets and backgrounds with benefits.
Brandon Stanaway ’19 is a double major in History and Economics, with a minor in Politics. He is also a member of the Student Union.