Amazon Wisely Seeks to Limit Tax Bill, Faux Purists Naively Cry 'Cronyism'
True advocates of limited government have long looked askance at supply-side excitement related to tax-rate cuts that result in higher tax revenues. While they generally don’t reject the supply-side argument that tax cuts can increase the nominal amount of taxes paid, and certainly don’t reject lower penalties levied on work and investment, the revenue growth bothers them. With good reason. Politicians always spend the money that flows to them. Sad about the latter is that government spending nearly always multiplies when we remember that programs created by politicians rarely – if ever – shrink, and nearly always develop constituencies consistent with their economy-sapping exponential growth over time.
To be clear, government spending is the biggest tax that we the people suffer. When governments spend, the latter amounts to a misallocation of precious resources to the economy’s detriment. Worse is the unseen; as in the cancer and heart disease cures, the tech innovations that would make the internet of today seem primitive, along with the transportation advances that aren’t happening since politicians are wasting so much of the precious resources always and everywhere created in the private sector, and that fund the experimentation without which there is no progress. When governments collect revenues, our freedom declines alongside our ability to prosper.
Which brings us to Amazon’s decision to locate substantial headquarter space in Crystal City, VA and Long Island City, New York. The response of the left wasn’t terribly surprising. Lots of snide commentary about how Amazon isn’t choosing “a hard-up or overlooked region,” but is instead choosing “two places along the prosperous northeast corridor” (Annie Lowrey). About this, one wonders if Lowrey has ever set foot in Long Island City. Though it’s near Manhattan, so is Hawthorne near Beverly Hills. But no one would mistake the two cities for one another, which calls into question Lowrey’s aim to turn this into a rich-get-richer story. Long Island City is in the figurative sense thousands and thousands of miles away from the bright lights of Manhattan.
As for members of the right, Amazon’s choices reject their somewhat figurative fantasies about zero-tax Orlando eventually replacing nosebleed-tax San Francisco as a tech hub. About this, tax rates do matter. But for younger, tech-focused workers, residence in a major city full of people like them seemingly matters even more. So while tax rates are very important, they’re not everything. Goodness, half of all VC dollars in the world wind up in overtaxed California. What does that tell you? That location trumps taxation yet again calls into question Long Island City as a choice. Time will tell.
Where this all gets interesting is in consideration of how many on the right found themselves in agreement with Alexandria Ocasio-Cortez on the hard left about the allegedly “crony” nature of Amazon’s HQ deal. About this, it’s disappointing to see columnists lucky enough to live in the age of Jeff Bezos so breezily pull out the “crony” and “corporate welfare” cards on him given their naïve view that Bezos snagged “$2 Billion in Bribes and Tax Credits From New York and Virginia.” The previous headline is a real one, and it broadly characterizes the reaction of the libertarian right to Amazon’s decision. Ocasio-Cortez agrees with the right libertarians, or the right libertarians agree with Ocasio-Cortez. It says here that the right libertarians have missed the boat big time as their agreement with Ocasio-Cortez should have already alerted them.
To understand why, it’s crucial to take into account their reasoning. As one column put it, “Amazon would have likely made the same decision with or without subsidies.” This writer was arguably correct, and that’s precisely why Amazon’s dealmaking with Crystal City and Long Island City should cheer right libertarians. It should because Amazon’s arrival in the two locales will not coincide with surging tax revenues, or too much in the way of surging revenues. Thanks to various tax credits, abatements and incentives, what should have been a revenue bonanza for both locales will not be. Thank goodness.
Rather than celebrate the above, the self-styled free-thinkers in our midst claim that Amazon is benefiting from tax “handouts.” No, everyone benefits when politicians have less money to spend. In the case of Amazon, if its arrival coincides with boom times for both cities the good news is that the various tax “handouts” mean that boom times will not as readily fill up government coffers. And then if Amazon winds up morphing into Sears quicker than the markets think such that its new HQs prove a bust, the good news for both cities is that their recovery will not be weighed down by a larger government enabled by Amazon initially being taxed at the same rate as any other corporation in each city.
To Amazon’s lower rates of taxation, the self-styled free thinkers further argue that “blatant cronyism is unfair to local companies who face heavier tax burdens than the favored companies and, in addition, a future tax burden that is likely heavier as a result.” Ok, but wait a second. "rate" has been italicized twice given the basic truth that two companies paying the same rate in no way face the same tax burden. A flat rate of any kind is not the same as equal tax treatment when we remember that everyone earns differently. If Amazon were to pay the same rate of taxation in either city, then it would easily face the biggest tax burden of all.
Furthermore, just because Amazon is getting a tax deal doesn’t mean the taxes of other corporations must automatically go up. And while in a rational world corporations wouldn’t be taxed at all, the world sadly isn’t rational. Since it isn’t, what’s truly irrational is that the biggest, most valuable companies must be on a ‘level, tax rate playing field’ with others. Why? This is a particularly useful question to the free thinkers all over this story who would likely (and properly) nod along to the statement that tax cuts for the richest individuals are far more economically stimulative than are rate reductions for the average taxpayer. Precisely because the rich are more likely to invest their abundant untaxed wealth, we all gain. That’s why, in a normal world, the rich would pay the lowest rates of taxation of all because we don't want politicians to gain from private initiative, because it's improper to excessively penalize achievement, and because the economy booms the most when wealth is taxed the least. What’s true for individuals should, in a reasonable world be true for corporations. Why, short of zeroing out this double tax altogether, should the right side with the notion that the biggest companies must pay the same rate of taxation as the corner store? This just means that the big, for being big, will hand over exponentially more in taxes to government. Why? Shouldn’t the policy goal be to reduce the tax burden on the biggest the most? Long Island City and Crystal City are doing just that to the tax-revenue detriment of each government, yet the right are puzzlingly yelping about “cronyism.”
One right-of-center columnist decried Amazon’s tax breaks simply because they’ll allegedly “cost” $48,000 per job. Yeah, except that such an argument can be found throughout the left’s rhetorical playbook. They also point to the “costs” of tax cuts given their belief that we the people work for the government, as opposed to the government working for us, so it’s passing strange that tax credits for Amazon are being billed as a “cost.” No, it’s a benefit when the arrival of private business doesn’t coincide with a tax bonanza for the local government. Implicit in the right’s reaction to Amazon’s national expansion is that it’s only a good thing if governments grow thanks to the arrival of the deep-pocketed. No.
Which leads to the weakest argument of all that’s come from the Amazon-deranged free thinkers, that it’s arrival without tax credits, abatements and incentives “could have paid for three years of road maintenance or have reduced the corporate income tax rates by 5.42 percent, which would benefit ordinary companies without political favor. Virginia could have reduced the corporate income tax by 45.16 percent and maintained the roads for four years with that money. Congrats Amazon and sorry everyone else!” Oh dear….
Back to reality, and if we ignore how Amazon’s migration to both cities will probably very sadly result in surging revenues given all the people and businesses that will cluster around Amazon-driven prosperity, no sane person ever expected Long Island City and/or Crystal City to reduce their corporate taxes without Amazon’s “handouts.” Sorry free thinkers, but this wasn’t an either/or scenario along the lines of Amazon or substantial tax cuts.
Absent Amazon, tax rates were most likely going to remain what they were in each city, and that’s the crucial point. Thank goodness for residents and businesses in each that the addition of Amazon won’t amount to as a much of tax-revenue bonanza, one that would expand government in both cities on the way to an increased burden for everyone. While it’s once again reasonable to speculate that Amazon’s new HQs will coincide with tax-revenue booms for the winning cities, limited government advocates should be relieved that Amazon negotiated substantial tax breaks so that government doesn’t grow too much.
Which leads us to the basic point, one presumably lost on free thinkers who don’t have shareholders to worry about: Amazon does. Because it has owners eager for returns on investment, it must do everything possible to lower its tax bill. To right libertarians this is normally a good thing, but caught up in their faux purity about “cronyism” and “corporate welfare,” they’ve chosen to attack a company going to great lengths to shrink its tax bill. Strange days indeed, and unfortunate ones when the free-thinkers are naively siding with a proud socialist.
