What happened
Amazon cut a deal with the state and City of New York to locate one of two new headquarters in the Queens section of Long Island. The move would have brought 25,000 or so jobs to NYC in exchange for about $3 billion in tax subsidies over a 25-year period. Activists thought the deal was too generous to Amazon and wouldn’t help local residents enough, especially since Amazon signaled it would not welcome unionization efforts.
Context: Tax Subsidies
The tax subsidies were mostly conditional tax credits, meaning Amazon wouldn’t owe as much in taxes to New York state and City if it met certain conditions. Specifically:
Almost $900 million from the Relocation and Employment Assistance Program (REAP) for relocated employees and capital improvements.
Almost $400 million in property tax abatements from the Industrial & Commercial Abatement Program (ICAP) for renovation and construction.
Another $1.7 billion from the Excelsior program for new jobs and local R & D.
These tax incentive programs weren’t created for Amazon. The City and state have more than a dozen such programs. They have to, because it’s so damn expensive to do business in New York, what with a state tax on business income of around 6.5% and a NYC tax approaching 9% - not to mention the third highest property taxes in the nation. A state-by-state comparison ranked New York 49 out of 50 with regard to business tax climate. It’s no wonder the state and city use tax credits to entice businesses to move there. It’s like a merchant selling overpriced goods, then offering 30% off. That’s not a “giveaway” - that’s a clever marketing strategy. And tax incentives only result in foregone revenue to the extent that the incentives weren’t needed to attract businesses in the first place. If no tax revenue is coming in, no revenue is being lost to tax credits. So the question, “was the Amazon deal worth it?” is partly answered by “What was the alternative”? Were there other businesses in the wings that wanted the same location and could provide greater benefit at less cost?
What sort of benefit am I talking about? For starters, tax revenue. Amazon employees would have generated a bit over $27 billion in personal income tax revenue over a 25-year period. That’s based on an average Amazon employee wage of $150,000, which would generate an annual tax revenue of around $4500 per person for the City and almost $10,000 per person for the state. Plus tax revenue on business income and property. Plus jobs for local residents. In Amazon’s case, that would have been about 1,300 construction jobs and 107,000 in total direct and indirect jobs, such as custodians, restaurant workers, and retail workers, not to mention jobs at Amazon itself, including many admin support positions for low-income locals without college degrees. No doubt Amazon would have also donated to local affordable housing and training projects, as it has done in Seattle.
The irony is that Amazon got better offers elsewhere. Montgomery County, which neighbors Northern Virginia, reportedly offered Amazon $8.5 billion in incentives. What made New York City such an attractive location was the availability of a highly educated workforce. The tax breaks were just icing on the cake.
Next: Part II: Amazon Gives Up on New York, Part II: Unions