Posted on 10/05/2017 1:00:25 PM PDT by SeekAndFind
On the promise of 50,000 jobs with average wages of over $100,000 plus $5 billion or more in investment for buildings and equipment, roughly fifty cities around the U.S. and Canada are busily competing to be the location of Amazon’s second headquarter campus, dubbed HQ2. To be the winner of this contest, a city first must meet a long list of qualifications and then has to outbid other qualified cities in terms of offering the largest possible package of subsidies and tax breaks to Amazon. While the competition is fierce, some simple math suggests cities should pass on this contest. The winner of HQ2 will almost surely be a financial loser.
The state of Wisconsin just offered Foxconn $3 billion in tax breaks and incentives in order to attract somewhere between 3,000 and 13,000 jobs. That works out to a cost of between $250,000 and $1 million per job depending on the number of jobs eventually created. The state of Washington gave Boeing a potential $8.7 billion in order to keep the production of its 777x jetliner in the state and preserve or create about 8,500 jobs. That tax break could be $1 million per job.
The above examples are two of the most lucrative deals ever extracted by a business from state and local governments, but Amazon will surely use them as benchmarks. Amazon will remind every city and state in the running that HQ2 contains far more jobs and higher average wages, so the impact on the local economy will be greater. They will ask for and expect a comparable or bigger deal from the winning city, county, and state.
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.
(Excerpt) Read more at forbes.com ...
The author’s reasoning:
Cities and states longing to attract Amazon’s Second Headquarters will say, we can collect income and sales taxes from those 50,000 well-paid workers that will be added to its community.
Based on an average state income tax rate, income tax on HQ2’s wages might be $200 million a year. Sales tax on taxable spending by those 50,000 employees might produce another $150 million per year. $350 million per year, for twenty years, would be $7 billion in tax revenue.
With $1 billion already committed to property tax relief, it looks as if the total amount offered to attract HQ2 would have to be under $8 billion for a city and state to have any hope of breaking even if they won this contest. Yet $8 billion is only $160,000 per job, much less than what Boeing and Foxconn received.
Worse, that tax revenue cannot all be used to offset the tax breaks because those employees impose actual costs on the state and local governments. 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—which is really expensive. In reality, state and local governments typically make no money on residents. They lose money on them or, at best, break even.
simple math suggests cities should pass on this contest.
Please don’t come to Texas. Maryland is a great place for Amazon!
If you’ve got a great proven business idea, launch on your own.
Cities shouldn’t be playing this game.
Maybe people thinking of moving to the town, should demand some sort of up front money too.
Blah, blah, blah.
Amazon is the fastest growing large company in history. It’s riches are just beginning to emerge.
Wherever they build, scores of mid-sized businesses will emerge around them and form a tech ecosystem.
Whoever wins this, wins big.
Or the "next thing," post-Amazon, comes out of nowhere and Amazon goes down the toilet. Then a municipality that bet on this loses big.
No matter. Pittsburgh Mayor Bill Peduto would still do the deal. So he can be the COOL kid on the block with his Millenial supporters.
And it will most certainly be a West Coast city.
The unspoken siting requirement is “coolness”. In Amazonian, that means West Coast.
And how many of the employees will be locals who will get a pay raise to work there rather than new jobs?
Only if those extra tech jobs go to citizens, not guest worker bodyshop firms.
RE: Please don’t come to Texas. Maryland is a great place for Amazon!
Dallas is one of the favorites to get the deal.
This is worst than the argument that lower taxes do not generate revenue. First the states are not giving up a dime, they are offering tax incentives on revenue and income they are not currently collecting.
Fifty thousand employees is likely close to fifty thousand families with new home purchases, entertainment and restaurant expenses, groceries, new car purchases, and countless other things working families spend money on that will spur investment, lower unemployment, and keep local business thriving. All this extra revenue and business activity is at the cost of reduced tax revenue from Amazon to the state.
The flip side, is a city doesn’t get the Amazon HQ. No growth, no actual revenue gain, unemployment, and the same economy for local businesses. Nothing’s changed.
An extra fifty thousand upper middle-class, highly educated citizens is a godsend to most cities.
Yep, but they bid anyway. It’s funny cities do the same thing to draw high profile businesses they do to get sports teams. We only complain about sports stadiums though.
“Or the “next thing,” post-Amazon”
The logistics of goods via telekinetics? Ordering via telepathy?
And then there is their “Cloud” services. Largest in the world in the fastest growing tech sector.
Half of the internet goes to Amazon. Soon they will “be” the Internet.
I don’t know about other folks, but I cannot imagine what happens after this. I believe their dominance will last over a century, certainly.
Nobody imagined Amazon until it happened.
I believe their dominance will last over a century, certainly.
That's hysterical.
I think that is one reason why Amazon may be setting up another headquarters is they can't get enough people to move to Seattle because housing and apartment prices are really high.
50,000 jobs with salaries starting at $100k.
Transformative for the city that wins.
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