Why AOC Was Right About HQ2
Colin Fitzgerald and Collin McDonough
While searching for a site to locate their second headquarters—dubbed “HQ2”—Amazon undertook a nationwide hunt for which city would hand them the biggest bag of money. States and municipalities created competing proposals for Amazon, with theatrics rivaling the Super Bowl Halftime Show. One location offering a hefty tax-incentive package was New York. Between state and local governments, Amazon was offered $3.5 billion in benefits, in exchange for both an agreement to create 25,000 jobs over ten years and $2.5 billion in development investment in a Long Island City campus. Some simple back-of-the-napkin math shows this incentive would equate to about a $140,000-per-job handout.
Over the past decade, we have seen this scenario play out time and time again: A corporation promises to deliver X amount of jobs and Y amount of investment, cities and states provide massive tax incentives to do so, and the corporation fails to deliver. Examples abound: Tawainese electronics company Foxconn was offered $4 billion in incentives to bring 13,000 manufacturing jobs to Wisconsin, only to quickly and dramatically scale back their plans, claiming "the global market environment that existed when the project was first announced has changed"; in 2016, Switch, a Nevada-based operator of data centers, came to Michigan promising $5 billion in investment and 1,000 new jobs over ten years, and even though those numbers have proven unrealistic, the company still has a deal exempting them from most property taxes; in 2017, Chinese retail corporation Alibaba announced plans to create one million jobs in the US before backing down following trade disputes between the two countries. Even American giants like Intel, IBM, and—you guessed it—Amazon have failed to live up to their promised job creation and investment in the past, despite incentivization from local and state governments. (For Amazon specifically, the opening of new locations does not lead to increases in private-sector employment.) Corporations love to tout outrageous figures for what kind of investment they can bring to a new region, but they almost never meet those expectations. For that reason alone, governments shouldn't be so eager to craft one-sided agreements with corporations, who can choose to observe or ignore them as they please.
While in the case of Amazon's initial New York deal, the failure to deliver promised jobs would have halted the financial incentives the corporation would have received from the government, it wouldn't restore the time, effort, resources, or money already invested in the project. Likewise, without all of the 25,000 jobs over ten years that was originally negotiated for (or the possible 15,000 expanded employment opportunities beyond 2028, which Amazon erroneously publicized), outlook on the deal would no doubt have shifted. Look at it this way: Amazon is only being offered such enormous tax credits because of their equally enormous obligations in job creation and investment. If employment growth would have slowed below the agreed-upon threshold after 2023, for example, the company still would have collected five years’’ worth of benefits. It is likely the city and state would have negotiated for more-modest tax credits, had the number of jobs promised been lowered to a number that the corporation would be more likely to fill.
In the end, after stern objections from prominent officials like Congresswoman Alexandria Ocasio-Cortez and New York City Council Speaker Corey Johnson, Amazon decided not to develop an HQ location in New York. Nevertheless, the company recently announced it would bring 1,500 jobs to New York—despite no offer of a tax break. This is meaningful for a number of reasons, but first, it's crucial to understand what such tax incentives actually represent and why early criticism of the deal was so harsh.
High-profile proponents of the original Amazon deal, including New York Governor Andrew Cuomo and New York City Mayor Bill de Blasio, initially pushed back against Ocasio-Cortez's criticisms of the tax incentives, with Cuomo saying, "This is a big money-maker for us—costs us nothing, nada, niente," and de Blasio agreeing with NBC's Chuck Todd that the tax breaks did not represent "money you had over here, and it was going over there. This is money that didn't exist." But the argument that the city would not literally pay cash to Amazon is superficial and semantic. Objection to the tax credits was rooted in the fact that New York taxpayers would be subsidizing Amazon's activities in the city by surrendering $3 billion in would-be tax revenue to the corporation—money that the city and state governments would need to offset the enormous hidden costs associated with Amazon's residence. The resulting deal would ultimately have made Amazon over $3 billion richer, while the burden of necessary city- and state-funded programs, projects, and initiatives reacting to the problems Amazon would have inevitably brought to the city would have fallen hard on New York’s citizens.
Such issues are already affecting the new site for Amazon's second headquarters: Arlington, Virginia. Before Amazon even broke ground on HQ2, the New York Times reported that Arlington’s housing market had already begun to feel the detrimental effects of Amazon's pending insurgence, including unprecedented rent spikes, overzealous inquiries from speculators, and an increased municipal housing budget. Tenants are being pushed out by inflated rents, to make room for the influx of out-of-state hires Amazon's new campus will bring to the area, while homeowners are being pressured to sell. Such abrupt, sweeping changes to the housing market will no doubt spur homelessness and gentrification as well as inequality between the city's lifelong residents and the incoming upper-middle-class implants. These are social concerns that can only be addressed through systemic, government-led, tax-funded action—increased law enforcement, beefed-up welfare programs, etc.—of exactly the sort Amazon would avoid paying taxes for, according to the New York deal.
Virginia isn't alone, of course. Amazon's first home—Seattle, Washington—has been notoriously transformed since Amazon built its main campus. For example, over the last decade, the number of people experiencing homelessness in Seattle's King County has ballooned, resulting in part from the same skyrocketing rents and house prices that Arlington is already beginning to see. Amazon has taken a similarly steep toll on public transport, utilities, and infrastructure in the city. While segments of Seattle continue to suffer from the fallout of Amazon's takeover, Jeff Bezos has continually invested in defeating all attempts by the city and state to increase tax revenue from corporations and the rich. In 2010, he contributed to a campaign against a 5-percent tax on income over $200,000 in Washington (which has no income tax). More recently, according to The Guardian, he’s fought against a tax that "would have charged large businesses an annual $275 per employee" through "blackmail" tactics, painting it as a "tax on jobs" and "[threatening] to freeze construction in the city." It is clear that Bezos and Amazon remain deeply committed to limiting their share of taxes while also exploiting publicly funded programs and amenities.
Of course, Amazon doesn't see it that way. Brian Huseman, Amazon’s vice president for public policy, told the New York Times about Arlington's HQ2, "We plan to grow gradually and hire people who live here to help reduce the impact on the region." Unfortunately, Arlington—and Virginia as a whole—simply doesn’t have the talent pool for the proposed 25,000 largely white-collar jobs, most of which require extensive experience and education that the state can't fulfill. Arlington's housing market is already reacting to this by expecting a vast inpouring of non-local residents to buy up homes and pay bloated rents, but meanwhile, Virginia Governor Ralph Northam announced a plan to "boost the tech talent pipeline" offering grants to universities that can deliver a total of 31,000 computer science graduates over the next two decades—grants paid for, of course, by taxes Amazon will bend over backward to evade.
Now, consider if the negative impacts Amazon's headquarters have had on Seattle and Arlington were shifted to New York City, where residents are already suffocating under gentrification, high cost of living, homelessness, income and racial inequality, crowded streets and public transport, and deeply problematic policing. The hidden effects of Amazon's presence would have rippled across generations: The effects would put increased wear on public services, which would spur greater government spending on public works; the effects would destabilize the housing market, which would drive homelessness and inequality, further costing the local and federal governments on welfare programs and the justice system; the effects would fundamentally change the culture of the city and alienate current residents. Under the deal put forth, though, they would have been gifted $3 billion in tax incentives anyway, ensuring that they wouldn't have had to pay their fair share.
If Amazon truly wanted to "reduce the impact" on the regions in which they operate, they would invest in institutional solutions to these problems via taxes, or they would modify their business model to diminish their negative footprint on the community. Instead, they only seem willing to enact countermeasures under their express control and with the benefit of positive press—such as with the homeless shelter currently under construction within their Seattle campus. With half-measures like these, corporations like Amazon pretend to care about the places where they do business, yet they are quick to threaten to cut jobs or pull entirely out of a region if they don't get the tax treatment they feel entitled to. At the bare minimum, tax revenue is necessary to offset the rising costs of social programs and public funding and—unlike corporate donations to cherry-picked local organizations or investments in private development—the only truly reliable source of capital from Amazon to the city and state governments. By circumventing the system for tax breaks they don't need, Amazon essentially asks the public to subsidize its growth. In 2017 alone, corporate tax incentives affecting property taxes in twenty-eight states accounted for $1.8 billion in lost revenue for public schools. These are unnecessary losses; corporations ultimately have to bring their business somewhere, with or without tax incentives. Politicians should be pressuring corporations to operate responsibly, not cutting them sweetheart deals at the expense of their fellow citizens.
While it's admittedly not HQ2, the fact that Amazon, which turned away from the New York deal after some residents and politicians voiced critical concerns about the damage the corporation could bring to the city, is now once again committed to bringing 1,500 jobs to the city—without any of the previously promised tax credits—is proof of what many progressives knew all along: Amazon wants to do business in New York, regardless of incentives. Amazon's new move doesn't bring with it the same grade of promised development, job creation, or prestige to New York, but it also doesn't burden the city with lost tax revenue, nor does it intensify the city's long-standing sociopolitical, cultural, or fiscal struggles. In this new exchange, New York finally comes out ahead, which should have been the goal all along.
Jeff Bezos is the richest man in the world. He and his fellow ultra-billionaires don’t need tax breaks. We need to start talking about this for what it really is: billionaires holding the American people hostage to grow even richer.
Colin Fitzgerald is a graduate of Central Michigan University. He has written for online culture magazines PopMatters and Tiny Mix Tapes.
Collin McDonough is a recovering legislative staffer. He is a Voting Rights Advisor and Polling Analyst at Data for Progress and does freelance data science and campaign consulting work. He holds a Bachelor’s degree in Political Science from Michigan State University, has a certificate in Data Science from Johns Hopkins University, and is a JD/MA-Economics and an MS-Applied Data Science candidate at Wayne State University Law School and Syracuse University, respectively. He invented the “More like Breaking Good” joke.