Amazon HQ2: Win by Losing

Columnist : L. Henry

Two Pennsylvania cities are competing to become Amazon’s second national headquarters. Undisclosed billions in taxpayer dollars are being offered to lure the on-line giant and the 50,000 plus jobs and spin-off economic benefits the facility will supposedly generate.

This is a case where we might win by losing.

The HQ2 sweepstakes is a prime example of the misguided “economic development” policies practiced in Pennsylvania and most other states which try to overcome high taxes, burdensome regulations, and antiquated infrastructure by offering tax credits and other incentives to entice businesses to locate or expand within their borders.

In addition to the flawed premise that this actually works, the HQ2 competition has become even more egregious due to the lack of transparency in the bids being offered by Pittsburgh and Philadelphia. Tax credits and other incentives are a de facto expenditure of public funds. Such expenditures are not directly appropriated by governmental bodies, but rather are hidden in various budget categories essentially ceding to non-elected bureaucrats control of tax dollars.

The state, county and municipal governments involved have refused to disclose details of their proposals claiming the need to keep such information hidden from competitor cities which might use the data to one up Pennsylvania’s proposals. Trade secrets are fine for private companies, but taxpayers deserve to know how much of the public wealth is being offered to entice a large and enormously profitable company to locate here.

Based on existing business climate conditions, and absent tax credits and incentives, neither Pittsburgh nor Philadelphia or any location within our state’s borders would be even remotely competitive in the HQ2 sweepstakes. In fact, regardless of how sweet officials make their offer, Pennsylvania has virtually no chance of landing Amazon.

With the second highest corporate tax rate in the nation, regulators that are inherently hostile to business, and a legislature constantly on the prowl for new revenue sources to feed its spending addiction, Amazon could locate virtually anywhere else in the nation and find a more hospitable climate in which to do business.

This was driven home in the recent Rich States/Poor States report released by the American Legislative Exchange Council (ALEC). Overall Pennsylvania ranked 38th. The good news is we eclipsed our neighboring states New York and New Jersey, the bad news is other mid-Atlantic states such as Virginia and North Carolina as well as southern powerhouse states like Florida and Texas leave us in the dust.

Pennsylvania also has some ticking fiscal time bombs. Most notably state public employee pension systems facing over $60 billion in unfunded liabilities that at some point will require a massive infusion of dollars from the general fund. Add in high property taxes, high unemployment and workers’ compensation costs, and a large state debt burden and the Keystone state becomes a very unattractive place to locate.

When a company is awarded tax credits and other incentives to locate or expand in Pennsylvania those already conducting business here unwillingly pay the price. That is because when one company does not pay its fair share of taxes, others must make up the difference. In the case of Amazon, the brick and mortar stores with which it competes will pay more to subsidize a direct competitor who would benefit from state and local tax breaks.

Over the years, the Lincoln Institute has surveyed the owners and chief executive officers of Pennsylvania businesses. Consistently, and by a wide a wide margin, they have opposed the state’s economic development policies of picking winners and losers. They see cutting corporate tax rates and reducing burdensome regulations on all businesses as producing a rising tide that would lift all business boats.

Because of the overt secrecy surrounding the bids by Pittsburgh and Philadelphia to convince Amazon to locate HQ2 here we do not know exactly how many public dollars are being offered, nor has there been any independent analysis on the overall economic impact of the incentive packages. Worse, even when Pennsylvania has “won” such competitions many companies stayed only as long as the tax abatements and incentives lasted. When they had to begin playing by the same rules as everyone else, they promptly left for better economic climates.

With Amazon shining a bright light on the process, now is the time for Pennsylvania policy-makers to reassess having government pick winners and losers, and instead take the steps necessary to improve Pennsylvania’s economic climate for all businesses.

(Lowman S. Henry is Chairman CEO of the Lincoln Institute and host of the weekly Lincoln Radio Journal. His e-mail address is [email protected])

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