SPEED READ:
- Legislatures in Florida, Illinois, New York and several other states are considering or may take up a version of the End Corporate Welfare Act, which would stop the practice of offering tax incentives deisigned to woo certain corporations to relocate.
- Supporters say such a multistate compact would end the "race to the bottom" of states trying to outbid one another in corporate giveaways.
- The effort is part of a backlash to the $2 billion in tax breaks promised to Amazon by New York and Virginia for its second headquarters.
Amazon’s yearlong, nationwide contest for its second corporate headquarters netted the internet retail giant more than $2 billion in promised tax breaks from New York state and Virginia. But after mounting public resistance to such "corporate welfare," Amazon announced Thursday that it will abandon its plans for New York City.
This, as the End Corporate Welfare Act is circulating in several states, including New York. The bill would essentially call a cease-fire on awarding tax incentives to certain companies by creating an interstate compact of states that agree to end the practice.
New York’s bill is being sponsored by Assemblyman Ron Kim and state Sen. Julia Salazar, who have criticized the state's deal with Amazon for months. “We are definitely glad our organizing has paid off,” says Michael Carter, a spokesman for Salazar. “This is not the first [corporate welfare] deal and it certainly won’t be last. But maybe now companies will think twice about pursuing one of these deals in the state of New York.”
A similar version to New York's bill is also making its way through the Arizona and Illinois legislatures, while lawmakers in other states, including Connecticut, Florida, Massachusetts and New Jersey, are considering introducing such legislation.
“For decades, corporations have pitted states against each other in a race to the bottom,” Kim says. Watching mayors and governors fall over each other to throw money at Amazon, a multibillion-dollar company, he says, was the tipping point for a lot of people. “Many lawmakers saw this and thought, ‘This is enough. We can’t be pitted against each other like this.’”
New York’s tax incentive package to Amazon, worth $1.2 billion, has been controversial among the region’s top Democrats, including U.S. Rep. Alexandria Ocasio-Cortez and former New York Mayor Michael Bloomberg, even as Amazon has promised thousands of new jobs and several billion dollars in investment. “Inviting an anti-union monopolistic enterprise into our city only makes sense if you want to make New York into a city where it’s impossible for working-class people to live,” says Salazar.
The bill and vocal opposition to the tax incentive package had led to reports in recent days that Amazon was having second thoughts about its Long Island City headquarters.
Are Tax Incentives Worth It?
Opponents of such deals cite data that suggest that tax incentives often aren’t worth what they cost governments.An Institute on Taxation and Economic Policy study noted that most giveaways simply move pieces on a chessboard, rather than create actual growth. "In the case of retail, as much as 90 percent of the apparent direct benefits of tax incentives are offset by losses among the subsidized retailer's local competitors," the study says. "While this figure is likely to be lower for industries serving a more national market, states constantly run the risk of harming existing businesses within their borders when they attempt to give some companies a competitive edge through the use of tax incentives."
In no place, perhaps, is this more clear than in Kansas City, which straddles both Kansas and Missouri. The two states have long competed with each other to woo businesses across the state line. AMC Theaters, Applebee's and JP Morgan Retirement are just a few of the companies that have crossed the border in recent years. So much money is involved that the tax incentives battle has been dubbed the "Kansas City Border War." Over the years, both states have proposed ending their tax credit programs for the region, but have never been able to find a mutually agreeable solution.
Given the difficulties the two states have faced in coming to an agreement, it's clear that convincing all states to end tax credits for companies would be very difficult. Connecticut state Rep. Josh Elliott, who is behind an effort to put forward a committee bill in Hartford, acknowledges that gaining national traction among states for banning company-specific tax credits is something that will take a decade or more. Of particular concern for a small state like Connecticut is whether such a pact would really work for the state unless all states in the Northeast are members.
“I think something like this has a 10- to 15-year window to become reality, and that might have to happen federally,” Elliott says. “I think it’s more important right now to start having this conversation than to have specific legislation.”
Tax incentives are particularly attractive to states that don't have highly developed commerce ecosystems akin to those in Chicago or New York City. Georgia, for example, has the biggest film tax credit program in the country. Last year, the state saw $2.7 billion in direct spending from productions in exchange for $800 million in tax credits, according to state figures.
Next door, Alabama has used tax credits over the last two decades to beef up its auto manufacturing industry, making it the "auto capital of the South."
But states like these, Kim says, already have natural selling points of lower taxes and a lower cost of living. By giving away tax incentives, they take money away from more valuable programs. “If you want real economic growth, you spend that money on infrastructure, on making cities and states better,” he says. “We need to build our own talent pool instead of making companies do it for us.”
To read this regularly, subscribe to "The Week in Public Finance" newsletter for free.
