Speaker 1: Welcome to brain Stuff from How Stuff Works. Hey, brain Stuff,
Speaker 1: I'm Lauren Vogelbaum. And In November, Amazon announced the winners
Speaker 1: of its year long bachelor style search for the location
Speaker 1: of its second headquarters, known as h Q. Two city
Speaker 1: and state governments were tripping over themselves to lure Amazon
Speaker 1: and its mega billionaire CEO, Jeff Bezos with sweetheart development deals.
Speaker 1: In the end, it was Arlington, Virginia, and New York
Speaker 1: City that split the grand prize, a new Amazon office
Speaker 1: complex and twenty five thousand promised jobs going to each city.
Speaker 1: As part of the deal with New York alone, Amazon
Speaker 1: will receive an estimated two point eight billion dollars in
Speaker 1: tax breaks and other business incentives. That's the equivalent of
Speaker 1: New York taxpayers paying Amazon a hundred and twelve thousand
Speaker 1: dollars for each of the twenty five thousand jobs that
Speaker 1: the tech giant has promised to create at its Long
Speaker 1: Island City headquarters. New York offered twice as much in
Speaker 1: incentives as Virginia did. The logic of offering up such
Speaker 1: huge incentives two companies like Amazon is that it's a
Speaker 1: long term investment in the city's economic future. According to
Speaker 1: Governor Andrew Cuomo of New York the state will collect
Speaker 1: twenty seven point five billion dollars in new tax revenue
Speaker 1: over the next twenty five years thanks to the Amazon deal. A.
Speaker 1: Cuomo's calculations assume that Amazon will directly create forty jobs
Speaker 1: in New York, though not the promised, and that local
Speaker 1: and state businesses will hire an additional sixty seven thousand
Speaker 1: workers to service Amazon and its employees, known as the
Speaker 1: job creation ripple effect. But plenty of commentators questioned the
Speaker 1: rosy figures pitched by politicians and are alarmed at the
Speaker 1: growing trend of huge corporations pitting state versus state to
Speaker 1: subsidize their expansions or relocations. The question is whether the
Speaker 1: very public and well publicized Amazon h Q two auction
Speaker 1: will signal a shift in the ways states and cities
Speaker 1: think about the economic benefits of such sweetheart development deals,
Speaker 1: or if it will simply embolden the next wealthy corporation
Speaker 1: to demand even more more. Let's talk about the rise
Speaker 1: of this very public type of deal. We spoke with
Speaker 1: Greg Leroy, the director of Good Jobs First, a nonprofit,
Speaker 1: nonpartisan watchdog group that's been tracking corporate subsidies for twenty years.
Speaker 1: He says that cities and states have been wooing big
Speaker 1: companies with tax breaks for eighty years, but those deals
Speaker 1: typically went down behind closed doors and were relatively modest.
Speaker 1: But the past few decades have seen an exponential increase
Speaker 1: in what Leroy calls mega deals, defined as incentive packages
Speaker 1: totaling more than fifty million dollars. According to research conducted
Speaker 1: by Good Jobs First, there have been three hundred and
Speaker 1: ninety three such mega deals since the mid nineteen eighties,
Speaker 1: with the frequency and dollar value of the deal's doubling
Speaker 1: every year. Starting in two thousand and eight, The biggest
Speaker 1: single deal was awarded to the aerospace giant Boeing, which
Speaker 1: threatened to leave Washington State and was offered eight point
Speaker 1: seven billion dollars in taxpayer incentives inten to stay. An
Speaker 1: opposing politician in Seattle called Boeing's tactics economic terrorism. Even
Speaker 1: before the HQ two auction, Amazon had received one hundred
Speaker 1: and forties six incentive packages, including eight mega deals totaling
Speaker 1: more than one point five billion dollars. The new packs
Speaker 1: with New York, Virginia, and Tennessee because Nashville is getting
Speaker 1: a new operations center as well, are set to increase
Speaker 1: Amazon's taxpayer fueled benefits by two hundred percent if or
Speaker 1: when they're paid out. Leori said Amazon is a very
Speaker 1: savvy company. It's scientific in its approach to getting more
Speaker 1: and more tax breaks. Amazon even created a dedicated tax
Speaker 1: break department about six years ago. Amazon and other large
Speaker 1: corporations have been so successful in winning tax concessions from
Speaker 1: states and cities because politicians are eager to be seen
Speaker 1: as job creators. With real wages stagnant for decades and
Speaker 1: the steady disappearance of traditional middle class jobs and manufacturing,
Speaker 1: governors and mayors are scrambling for a big win. This
Speaker 1: fuels the competition for high profile new factories, headquarters, and
Speaker 1: operations centers. It also fuels the economically feudal practice of
Speaker 1: job piracy, when states steal jobs from each other by
Speaker 1: luring away companies with piles of cash. Leroy has been
Speaker 1: fighting against corporate subsidies for decades and watching his incentive
Speaker 1: packages grow more and more excessive, but he wonders if
Speaker 1: the Amazon HQ two auction won't be the breaking point
Speaker 1: that he and other economic activists have been waiting for.
Speaker 1: He said, if there's ever been a moment when America
Speaker 1: seems ready to rethink this whole crazy system. It's now
Speaker 1: Amazon HQ two was a very unusual public auction. Now
Speaker 1: that people understand what a rip off it is for taxpayers,
Speaker 1: there's a big appetite to fix the system. For example,
Speaker 1: notice that Amazon didn't end up choosing the biggest deals
Speaker 1: in total dollar value. Maryland, for example, dangled an eight
Speaker 1: point five billion dollar carrot in front of Amazon's nose,
Speaker 1: and New Jersey offered a package totaling seven billion dollars,
Speaker 1: but Amazon passed them both up. Leroy explains that quote
Speaker 1: incentives almost never determine where a come the expands or relocates.
Speaker 1: They're too small. And while two point eight billion dollars
Speaker 1: is a huge number to New York taxpayers, tax incentives
Speaker 1: represent a tiny fraction, less than two percent, says Leroy,
Speaker 1: of the cost structure of a company like Amazon. Over
Speaker 1: the long term, Amazon and other large global corporations are
Speaker 1: going to make decisions based on local infrastructure. Good airports
Speaker 1: are critical, the available talent pool, and the broader business
Speaker 1: environment of the region. So all the money thrown at
Speaker 1: corporations in the form of free tax perks could be
Speaker 1: better spent building up the local infrastructure and investing in
Speaker 1: education and job training. Unfortunately, infrastructure and education are far
Speaker 1: less politically sexy than winning the economic development dating game.
Speaker 1: Today's episode was written by Dave Ruse and produced by
Speaker 1: Tyler Klang. For more on this and lots of other
Speaker 1: economic topics, visit our home planet, how stuff Works dot
Speaker 1: com