Good Jobs First Statement on Maryland’s $8.5 Billion bid for Amazon HQ2 Project

Washington, DC – Good Jobs First executive director Greg LeRoy made the following statement concerning the Maryland legislature’s passage of a subsidy package for Amazon.com’s HQ2 project that would bring the state’s total bid to $8.5 billion:

 

“As a Maryland taxpayer and economic development expert, I am aghast at the state’s massively-increased subsidy offer to Amazon.

“This would be the second-largest ‘megadeal’ in U.S. history, only slightly smaller than Washington State’s $8.7 billion package for Boeing in 2013.

“Like every huge megadeal, this would be a very risky ‘too many eggs in one basket’ giveaway that would shift the tax burden onto small businesses and working families while benefiting Amazon shareholders, the vast majority of whom do not reside in Maryland.

“The big winners in such a deal would be Virginia and the District of Columbia. They would pay nothing but each would gain a large share of the jobs. West Virginia, Pennsylvania and even Delaware would provide job-takers.

“We also dislike how the deal would be paid for. More than $4.9 billion, including most of the increase over the previous offer, comes from the state obligating itself to pay Amazon a tax credit equal to 5.75 percent of its employees’ salaries. We call this ‘ Paying Taxes to the Boss,’ and in this case, the rate of the personal income tax diversion exceeds the state’s rate for everyone earning less than $250,000.

“As we detailed in our 2012 study, 17 states then had such a subsidy, costing them in aggregate about $700 million per year due to deals with just 2,700 companies. Since then, Michigan has enacted the same diversion as part of its effort to land Foxconn, and now Maryland has moved to do it for Amazon.

“Paying Taxes to the Boss is terrible policy for three reasons:

“It crosses the line of how the United States has defined economic development incentives. It’s one thing to reduce a company’s property, sales or income taxes. It’s something quite different to give a company other people’s money-in this case employees’ state personal income taxes. Employees are not informed that their taxes are effectively not ending up in the state treasury, nor are they asked for their consent.

“Second, personal income taxes are “elastic.” That is, better than other revenue sources, they keep pace with the cost over time of maintaining public services. Losing them makes a state’s structural deficit worse. That in turn creates pressure to raise regressive consumption taxes, which in turns worsens inequality.

“Finally, we found that these giveaways are usually the big money in ‘interstate job fraud.’ That’s when companies move very short distances, but across a state line, to get huge tax breaks for creating “new” jobs while actually just changing workers’ commuting routes. This is especially evident in ‘war among the states’ hot spots such as Kansas City, Memphis, Charlotte and New York.

“Given our third finding, it’s no surprise to see this terrible policy figure into a state’s ‘buffalo hunting’ for a ‘trophy deal.’ At $4.9 billion for a single company, it’s very risky and will make it harder for Maryland to find resources to support small, local and entrepreneurial businesses.

“We believe that incentives will likely be between marginal to irrelevant in Amazon’s decision. That’s because all state and local taxes combined equal just 1.8 percent of the average company’s cost structure. It’s the other 98.2 percent of costs for business basics such as labor, occupancy, and other business inputs that almost always determine where companies expand or relocate.

“In this case, as in any large corporate headquarters siting, the key variable is the executive talent pool. For any company contemplating hiring 50,000 executives, the presence of other companies’ headquarters staff, along with strong university graduate programs in fields such as engineering, finance, law and marketing will be the most important issue.

“Saying that subsidies seldom matter much doesn’t mean Amazon won’t go to great lengths to get as many as it can. Indeed, since the creation of its own internal tax-break office in March 2012 with the hiring of Michael P. Grella, Amazon has gone on a tax-break binge. To date, it has received almost $1.4 billion in state and local subsidies, including at least 24 deals in 2017 alone. We are displeased that the company seems to have become more secretive about the value of such deals since the release of our December 2016 study on them.”

See Good Jobs First’s running tally of Amazon subsidies.