Amazon’s decision to abandon plans for a second headquarters in New York City even after negotiating a package of tax incentives with the city and state has invited a backlash—largely unjustified—against using tax breaks to lure jobs to an area.
The Wall Street Journal recently reported, for example, that governors of Kansas and Missouri are likely to sign a truce to end such deals in the Kansas City metropolitan area, which includes land in both states. (According to the report, 116 companies moved across state lines in either direction between 2011 and 2019 in response to economic incentives.) And last December, the editors of America wrote, “The principle of subsidiarity is poorly served in these cases—when U.S. cities and states act as if they are in an economic Cold War with one another and the ‘arms race’ of tax incentives helps only a handful of already successful private companies.”
Populist pressure to resist all forms of tax negotiation may hinder social progress. New York and other high-tax states might never make employers’ shortlists.
But populist pressure to resist all forms of tax negotiation may actually hinder social progress. Admittedly, if states and cities all adopted a “we don’t negotiate” policy regarding tax breaks and zoning changes, site selection would be easier for corporations planning new facilities. Accountants could simply spreadsheet tax codes and zoning laws to determine the lowest-cost jurisdictions. In this case, New York and many other high-tax states might never make the shortlist.
Tax laws and zoning codes are enacted so that states and communities can manage development, not foreclose it. Changes to zoning codes are often made to accommodate proposed commercial or residential development that does not neatly fit the existing standards. When these changes are made through a process of public hearings, they can result in a final plan that best suits the needs of both the developer and the town. Community amenities like playgrounds or open-space conservation zones may be demanded in exchange for higher housing density. My former hometown obtained a new fire station at the developer’s expense in exchange for variances in a shopping center plan. Thirty years later, all is still well. Negotiation often leads to win-win solutions and should not be summarily rejected in zoning or tax matters.
Enlightened community leaders, while responsible for balancing tax revenues and public expenditures, should also consider the social impact of large projects. What better way to support community than by enabling, through job creation, young singles and families to remain close to their parents, uncles and aunts?
Amazon had said it would hire 25,000 “knowledge workers,” mainly college graduates, at its Queens complex. Graduates of nearby colleges (Fordham, Columbia, Manhattan, St. John’s, N.Y.U., CUNY, etc.) who grew up in New York City or the near-suburbs would fill many of those jobs and thus be able to stay close to family and friends. Without those jobs, the grads look elsewhere. Some may even go to work for Amazon anyway, in Northern Virginia or another state.
Every community with young people graduating from high school or college should be interested in adding job opportunities as a legitimate promotion of the common good. New jobs are constantly needed to offset the loss of jobs resulting from technology changes at existing facilities and the attendant loss of tax revenues. Job creation is the antidote to decline and an important source of the revenue growth needed to pay for government services. Elected officials need flexibility to evaluate and respond to proposals.
Civil society also gets a boost from new employers coming into an area. Managers and employees of a newly arriving company will likely support local nonprofit agencies, both financially and by volunteering their time and talents. Some may offer to serve on local government boards or advisory councils. The community benefits from new ideas and new energy.
In rural areas, the opening of a large manufacturing plant or office complex may help diversify the local economy and offset the seasonal and year-to-year fluctuations of more seasonal employment sectors like agriculture and tourism. And, again, such projects can provide employment opportunities for young people who might otherwise leave the area.
Local or state officials presented with unusually large, complex projects seeking special concessions may prudently decide to simply stand by the existing tax programs and zoning requirements rather than risk the possible downsides of negotiating with a highly sophisticated applicant. Or they could hire independent consultants to evaluate proposals that seem attractive upon first review. Any negotiating party should have a carefully established walk-away position, to avoid stumbling into a regrettable result.
“We don’t negotiate” policies may harm communities through the silent loss of development opportunities never presented.
But blanket “we don’t negotiate” policies may harm communities through the silent loss of development opportunities never presented. There are ethical considerations against treating one employer better than others when there is little or no exceptional benefit to the community. But an incentive package that clearly brings special benefits to the community makes sense.
Ultimately, voters care about the economic and social conditions affecting them, their families and their neighborhood. Those are critical elements of the common good. A willingness to negotiate can bring new opportunities to the community.