Corporations Are Welfare Recipients, Too

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A year after Amazon waged a national bidding war among more than 200 American cities vying to become its second headquarters (HQ2), the online retail giant finally crowned the victors: Long Island City, New York, and Arlington, Virginia. No doubt, greater profits and political influence factored into Amazon’s awarding two up-and-coming coastal cities within a stone’s throw of the financial and political centers of the United States.

According to Amazon, a primary factor was the ability to attract highly-skilled labor—economic incentives were a secondary factor. However, many municipalities offered Amazon multi-billion dollar economic packages consisting of tax exemptions, development grants, prime real estate, and other taxpayer-subsidized corporate goodies.

For example, Maryland lawmakers approved an $8.5 billion tax-incentive package that included $2 billion in infrastructure and transportation improvement. Newark’s city council, in conjunction with New Jersey state officials, offered $7 billion in state and city tax exemptions. Dallas officials even crafted plans to construct a $15 billion bullet train, a 240-mile line from Houston to Dallas. In comparison, the Long Island City and Arlington bids were relatively modest ($1.5 billion in subsidies from New York and $573 million from Virginia).

What benefits did Amazon promise that drove lawmakers to offer such lavish economic incentives? Amazon estimates the new locations will produce $5 billion in local business investments and 50,000 full-time jobs with average salaries of $150,000. In other words, Amazon dangled one of the largest corporate development investments in American history.

Despite Amazon’s rosy projections, economists, policy researchers, and even some politicians question the wisdom of doling out huge economic incentives—also known as “corporate welfare”—to mega-corporations such as Amazon, which raked in $180 billion in revenue last year. In fact, the agreed-upon incentive deals will cost New York taxpayers $48,000 per HQ2 job and Virginia taxpayers $22,000 per HQ2 job.

Although the immediate benefits of winning the corporate giant’s headquarters are obvious, many policy analysts warn about corporate welfare’s potential consequences. Michael Farren and Anne Philpot, researchers at the Mercatus Center, contend cities and states are “throwing their money away” when they participate in economic development schemes. After analyzing several studies, they concluded economic incentives for businesses, especially for major corporations, are based on short-term political gains—not long-term economic benefits.

Although not likely, maybe instead of rewarding giant companies with taxpayer dollars, state legislators should enter into interstate compacts that end corporate welfare. Funds earmarked for corporate goodies should be stopped altogether. Rather, lawmakers should make their states and cities more business friendly by reducing corporate income taxes, increasing tax-credit scholarships, and improving public services and infrastructure.

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