Amazon wanted a really big tax break with HQ2

When Amazon went on a search for a second headquarters, it was motivated in part by looking for a big tax break:

When Elon Musk secured $1.3 billion from Nevada in 2014 to open a gigantic battery plant, Jeff Bezos noticed. In meetings, the Amazon.com Inc. chief expressed envy for how Musk had pitted five Western states against one another in a bidding war for thousands of manufacturing jobs; he wondered why Amazon was okay with accepting comparatively trifling incentives. It was a theme Bezos returned to often, according to four people privy to his thinking. Then in 2017, an Amazon executive sent around a congratulatory email lauding his team for landing $40 million in government incentives to build a $1.5 billion air hub near Cincinnati. The paltry sum irked Bezos, the people say, and made him even more determined to try something new.

And so, when Amazon launched a bakeoff for a second headquarters in September 2017, the company made plain that it was looking for government handouts in exchange for a pledge to invest $5 billion and hire 50,000 people. The splashy reality-television-style contest generated breathless media coverage, attracted fawning bids from 238 cities across North America and ended with Amazon deciding to split the so-called HQ2 between New York and Virginia. Then progressive politicians attacked the $3 billion in incentives offered by New York, and Bezos pulled out. Amazon was widely ridiculed for its failure to court New York politicians. To understand why that happened, Bloomberg interviewed 12 people familiar with Amazon’s effort. Their story, outlined here for the first time, depicts a team that became the victim of its own hubris. Bezos’s frustration with what he deemed meager government largess prompted executives to scrap lessons learned through the years in favor of an unapologetic appeal for tax breaks and other incentives.

This news came just as we finished introducing the concept of growth machines in my urban sociology class. In this theory, coalitions of political and business leaders drive development decisions with profits and growth in mind. In this particular case, Amazon looked to cut a deal with the city that was willing to give them the most. If Amazon chose their city, political and business leaders could claim they won because of all the new jobs plus the prestige of an Amazon headquarters while Amazon would profit from massive tax breaks. As I noted then, let the race to the bottom begin.

The biggest problem with all of this is not that there is competition between locations for headquarters and business activity. This has gone on for a long time and for a variety of organizations; read about the bids to land the United Nations headquarters. The issue is that the large tax breaks mean that some of the benefits of a business moving to a community are offset by tax breaks. And who benefits more in the end? The corporate leaders, not the community as a whole.

I can imagine a television game show format with all of this: a corporation says they want to expand and help a community or region along the way. Bidders/communities bring their pitch to the show, showcasing the best of their community (and the money). The corporation narrows it down and in the end names the one winner. Everyone else loses out (outside of making a public pitch regarding the best aspects of their community). It could be very entertaining.

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