Left, right both have reasons not to like tax break incentives
The Amazon HQ2 announcement is coming soon, likely by the end of the year.
I’m thankful San Antonio didn’t play that game, although Austin and Dallas were named top 20 finalists, and bettors believe the company will go to northern Virginia.
The game, if you need a refresher, is that Amazon intends to build a new 50,000-employee second headquarters, and invited city and county leaders last year to woo the company with lavish economic incentives.
One of the things I think about economic development incentives, which is clearly quite naïve of me, is that partisans on the left and right should always, for ideological reasons, oppose targeted tax breaks for specific companies.
On the right, a targeted tax break incentive seems the very antithesis of free-market capitalism. This involves a government putting its thumb on the scale to pick winners and losers. Worse, the incentives usually come with intrusive requirements, such as minimum numbers of jobs created, minimum salaries and further government interference. From a free-market perspective, when the government picks winners and losers we get a bad mix of misallocated resources and opportunities for corruption.
To the left, a targeted tax break for a specific company should appear as clear corporate welfare. When a government cuts property taxes or other fees for a specific business, the small number of capitalist owners of that company get a direct benefit to their bottom line, while the general population bears a greater burden for the rest of the taxes. That’s the very definition of benefiting the few on the backs of the many, and it should present clear problem for ideologues on the left.
Setting aside my naïveté, however, it seems like both the givers of government largesse and the recipients of the largesse believe in tremendous personal benefits from economic incentives. Meanwhile, public relations announcements inevitably focus on “goodpaying jobs” or praise the “jobcreating government.”
Again, this is just one man’s opinion, but when you incentivize companies to move to your city because of a tax break, and that company is willing to submit itself to a specific requirement for creating a certain number of jobs at a certain salary, there are two likely scenarios.
The optimistic scenario is that the well-run company planned the expansion anyway with or without government incentives and is cynically happy to receive government freebies because, hey, free money. That’s at least a clever, but cynical, company.
The pessimistic scenario is that the company makes important executive decisions based on tax incentives. That kind of company will be gone in five years, either because its executives have their priorities wrong and the company is badly run, or because another city or county has another better set of incentives to offer five years from now.
I’m confident Amazon is wellrun, will extract maximum value from its already preferred and chosen location, and is interested in incentives because, hey, free money.
University of Texas at Austin professor Nathan M. Jensen and Duke University professor Edmund J. Malesky recently published a book addressing these problems. “Incentives To Pander: How Politicians Use Corporate Welfare For Political Gain” reviews what economists already know, which is that there’s scant evidence that economic incentives work. Or if they work, the public benefit cannot be justified by the public cost.
Their study focuses less on the economic case for incentives and more on the political advantage city and county leaders get by offering these corporate goodies. It doesn’t matter so much that incentives don’t work, but rather it matters that voters think they work. Jensen and Malesky further argue that even an unsuccessful attempt to woo a company with tax breaks, for example, helps political leaders, because they can at least claim to have “tried their best.”
In the light of this, San Antonio Mayor Ron Nirenberg and Bexar County Judge Nelson Wolff ’s early and decisive “no” to Amazon’s HQ2 last October stands out as particularly courageous.
I asked Nirenberg whether he had any regrets about declining to compete for HQ2. His short answer is, no, no regrets.
His longer answer is that they didn’t so much say no to Amazon as start a different economic opportunity conversation about what San Antonio has to offer.
“With respect to HQ2 and the sweepstakes, that narrative of San Antonio’s bright future is weaved right into it. When the stories are written about the Amazon RFP, there is a subplot, which is San Antonio’s response,” Nirenberg said.
I have to say that, because I hate incentives so much, it’s refreshing to see an earnest refocus on the economic advantages of a place rather than dangling public goodies to a private company.
Nirenberg continued, “We are investing in the fundamentals in terms of housing, water supply, a reliable energy grid. And we have a workforce that mirrors what the rest of the country will look like 20 years from now. We are making investments in that workforce before most cities have even woken up to that reality.”
Says Nirenberg, “If a company is interested in a five-year return, and cashing out, there are many other cities. But if companies are interested in the 30-year return, I feel the fundamentals of our city are extremely competitive.” Brother, can I get an amen? Northern Virginia, early congrats on your future “win.”