WEBVTT - Will Amazon's Corporate Megadeal Change How Business Works?

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<v Speaker 1>Welcome to brain Stuff from How Stuff Works. Hey, brain Stuff,

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<v Speaker 1>I'm Lauren Vogelbaum. And In November, Amazon announced the winners

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<v Speaker 1>of its year long bachelor style search for the location

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<v Speaker 1>of its second headquarters, known as h Q. Two city

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<v Speaker 1>and state governments were tripping over themselves to lure Amazon

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<v Speaker 1>and its mega billionaire CEO, Jeff Bezos with sweetheart development deals.

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<v Speaker 1>In the end, it was Arlington, Virginia, and New York

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<v Speaker 1>City that split the grand prize, a new Amazon office

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<v Speaker 1>complex and twenty five thousand promised jobs going to each city.

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<v Speaker 1>As part of the deal with New York alone, Amazon

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<v Speaker 1>will receive an estimated two point eight billion dollars in

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<v Speaker 1>tax breaks and other business incentives. That's the equivalent of

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<v Speaker 1>New York taxpayers paying Amazon a hundred and twelve thousand

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<v Speaker 1>dollars for each of the twenty five thousand jobs that

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<v Speaker 1>the tech giant has promised to create at its Long

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<v Speaker 1>Island City headquarters. New York offered twice as much in

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<v Speaker 1>incentives as Virginia did. The logic of offering up such

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<v Speaker 1>huge incentives two companies like Amazon is that it's a

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<v Speaker 1>long term investment in the city's economic future. According to

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<v Speaker 1>Governor Andrew Cuomo of New York the state will collect

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<v Speaker 1>twenty seven point five billion dollars in new tax revenue

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<v Speaker 1>over the next twenty five years thanks to the Amazon deal. A.

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<v Speaker 1>Cuomo's calculations assume that Amazon will directly create forty jobs

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<v Speaker 1>in New York, though not the promised, and that local

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<v Speaker 1>and state businesses will hire an additional sixty seven thousand

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<v Speaker 1>workers to service Amazon and its employees, known as the

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<v Speaker 1>job creation ripple effect. But plenty of commentators questioned the

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<v Speaker 1>rosy figures pitched by politicians and are alarmed at the

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<v Speaker 1>growing trend of huge corporations pitting state versus state to

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<v Speaker 1>subsidize their expansions or relocations. The question is whether the

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<v Speaker 1>very public and well publicized Amazon h Q two auction

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<v Speaker 1>will signal a shift in the ways states and cities

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<v Speaker 1>think about the economic benefits of such sweetheart development deals,

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<v Speaker 1>or if it will simply embolden the next wealthy corporation

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<v Speaker 1>to demand even more more. Let's talk about the rise

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<v Speaker 1>of this very public type of deal. We spoke with

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<v Speaker 1>Greg Leroy, the director of Good Jobs First, a nonprofit,

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<v Speaker 1>nonpartisan watchdog group that's been tracking corporate subsidies for twenty years.

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<v Speaker 1>He says that cities and states have been wooing big

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<v Speaker 1>companies with tax breaks for eighty years, but those deals

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<v Speaker 1>typically went down behind closed doors and were relatively modest.

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<v Speaker 1>But the past few decades have seen an exponential increase

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<v Speaker 1>in what Leroy calls mega deals, defined as incentive packages

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<v Speaker 1>totaling more than fifty million dollars. According to research conducted

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<v Speaker 1>by Good Jobs First, there have been three hundred and

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<v Speaker 1>ninety three such mega deals since the mid nineteen eighties,

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<v Speaker 1>with the frequency and dollar value of the deal's doubling

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<v Speaker 1>every year. Starting in two thousand and eight, The biggest

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<v Speaker 1>single deal was awarded to the aerospace giant Boeing, which

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<v Speaker 1>threatened to leave Washington State and was offered eight point

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<v Speaker 1>seven billion dollars in taxpayer incentives inten to stay. An

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<v Speaker 1>opposing politician in Seattle called Boeing's tactics economic terrorism. Even

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<v Speaker 1>before the HQ two auction, Amazon had received one hundred

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<v Speaker 1>and forties six incentive packages, including eight mega deals totaling

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<v Speaker 1>more than one point five billion dollars. The new packs

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<v Speaker 1>with New York, Virginia, and Tennessee because Nashville is getting

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<v Speaker 1>a new operations center as well, are set to increase

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<v Speaker 1>Amazon's taxpayer fueled benefits by two hundred percent if or

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<v Speaker 1>when they're paid out. Leori said Amazon is a very

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<v Speaker 1>savvy company. It's scientific in its approach to getting more

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<v Speaker 1>and more tax breaks. Amazon even created a dedicated tax

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<v Speaker 1>break department about six years ago. Amazon and other large

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<v Speaker 1>corporations have been so successful in winning tax concessions from

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<v Speaker 1>states and cities because politicians are eager to be seen

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<v Speaker 1>as job creators. With real wages stagnant for decades and

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<v Speaker 1>the steady disappearance of traditional middle class jobs and manufacturing,

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<v Speaker 1>governors and mayors are scrambling for a big win. This

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<v Speaker 1>fuels the competition for high profile new factories, headquarters, and

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<v Speaker 1>operations centers. It also fuels the economically feudal practice of

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<v Speaker 1>job piracy, when states steal jobs from each other by

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<v Speaker 1>luring away companies with piles of cash. Leroy has been

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<v Speaker 1>fighting against corporate subsidies for decades and watching his incentive

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<v Speaker 1>packages grow more and more excessive, but he wonders if

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<v Speaker 1>the Amazon HQ two auction won't be the breaking point

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<v Speaker 1>that he and other economic activists have been waiting for.

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<v Speaker 1>He said, if there's ever been a moment when America

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<v Speaker 1>seems ready to rethink this whole crazy system. It's now

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<v Speaker 1>Amazon HQ two was a very unusual public auction. Now

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<v Speaker 1>that people understand what a rip off it is for taxpayers,

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<v Speaker 1>there's a big appetite to fix the system. For example,

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<v Speaker 1>notice that Amazon didn't end up choosing the biggest deals

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<v Speaker 1>in total dollar value. Maryland, for example, dangled an eight

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<v Speaker 1>point five billion dollar carrot in front of Amazon's nose,

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<v Speaker 1>and New Jersey offered a package totaling seven billion dollars,

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<v Speaker 1>but Amazon passed them both up. Leroy explains that quote

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<v Speaker 1>incentives almost never determine where a come the expands or relocates.

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<v Speaker 1>They're too small. And while two point eight billion dollars

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<v Speaker 1>is a huge number to New York taxpayers, tax incentives

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<v Speaker 1>represent a tiny fraction, less than two percent, says Leroy,

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<v Speaker 1>of the cost structure of a company like Amazon. Over

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<v Speaker 1>the long term, Amazon and other large global corporations are

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<v Speaker 1>going to make decisions based on local infrastructure. Good airports

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<v Speaker 1>are critical, the available talent pool, and the broader business

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<v Speaker 1>environment of the region. So all the money thrown at

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<v Speaker 1>corporations in the form of free tax perks could be

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<v Speaker 1>better spent building up the local infrastructure and investing in

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<v Speaker 1>education and job training. Unfortunately, infrastructure and education are far

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<v Speaker 1>less politically sexy than winning the economic development dating game.

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<v Speaker 1>Today's episode was written by Dave Ruse and produced by

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<v Speaker 1>Tyler Klang. For more on this and lots of other

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<v Speaker 1>economic topics, visit our home planet, how stuff Works dot

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<v Speaker 1>com