Aborted Amazon Deal Makes Fun of Liberals and Conservatives
There are a great many lessons to be learned from the Amazon decision to pull out of New York City, such as the need for jurisdictions to think about what they are really getting from roving companies in return for opening the vault to them. One lesson that shouldn’t be ignored is the fact that no one has come up with a way of getting a free lunch. The left should give up their hope that by abstaining from tax concessions government can grab a trove of invisible money. Centrists and conservatives should give up on the idea that foregone tax revenue carries no costs.
Under the deal that Amazon walked away from last week, the company would have received a subsidy of about $3 billion from Albany and City Hall, mostly in the form of tax abatements. In return, Amazon would bring 25,000 jobs to Queens - or about $120,000 per job, paid over a period of about 25 years. Both supporters and opponents of the deal claimed benefits that were in fact illusory. Rather than a two-sided debate, this is a double-sided illusion. Both sides are imagining gains that can be conjured by following different yellow brick roads. In reality, it is like the debate over whether we were hearing Yanny or Laurel. Both sides are deluded, each in its own way.
Let’s start by looking at those who oppose the deal. They seem to believe that by rescinding it they have suddenly happened upon a stash of money, as though they found $3 billion under the couch cushion - miracle money that can now be spent on hospitals, schools and decaying subway lines.
Reality alert: The state and city would in fact not be offering Amazon cash. The two levels of government would instead be extending revenue abatements. Rather than handing over a direct grant, governments would simply forgive some taxes that otherwise wouldn’t be owed to them by anyone. The end of the Amazon deal does not free up a horde of cash for the state and local governments, because they have no extra cash to free up.
But does that really mean the abatements carry no cost? Of course they do. Amazon didn’t decide to invest in New York in return for a handful of magic beans. Look at it this way: If tax abatements could be used to lure roving businesses without any real cost, why doesn’t New York use the same simple and painless method to try to lure every company in the world? Why doesn’t every jurisdiction do exactly the same thing? Did Andrew Cuomo and Bill de Blasio imagine they could simply print up Monopoly money on presses in the basement of the state House and city hall, and pass it off as legal tender?
The truth is, any subsidy carries a cost. Subsidized activities crowd out unsubsidized activities. Amazon’s huge footprint, and the impact of its 25,000 New York employees, would drive up the cost of housing and land, reduce the availability of potential development land, and eat up resources needed to accommodate other investments.
Does that mean it makes no sense for a dynamic economy like New York to stop seeking investment, to simply accept a ceiling on its own growth? Of course not. Rather, it means that the more robust an economy, the less sense it makes for it to chase rainbows and the more it can afford to let real opportunities come its way.
New York is a magnet for investment. Just ask Google, which has just announced that it will open a $1 billion, 1.7 million square foot facility in Manhattan’s Hudson Square - proof that Gotham’s plethora of new-collar workers, its drawing power, and extensive infrastructure provide a more attractive options than locations that require more investment.
Both supporters and opponents of luring corporate investment to New York should keep in mind that any deal that sounds too good to be true probably is. There isn’t a $3 billion store of cash to be drawn on for education and health care. Nor is there a potential tax loophole to leap through, with a $3 billion reservoir of cash on the other side. Any investment - including government investment - carries costs as well as benefits. Both sides of the balance sheet must be examined.