Economically Illiterate Politicians

Recently Amazon announced that it would be scrapping plans to open their much publicized HQ2 in New York. The move came as a shock to some who have worked for months laying the groundwork, and a relief to others who worked tirelessly to make sure Amazon never comes to their neighborhood. In this case Amazon is the one who comes out looking the best of all parties involved, though not good. Meanwhile, both the pro- and anti-Amazon politicians have had their broken policies brought into sharp focus.

The pro-Amazon contingent was comprised, most notably, of Andrew Cuomo, Governor of New York and Bill de Blasio, Mayor of New York City. In negotiations with Amazon both Cuomo and de Blasio have offered tax breaks to make New York a more attractive destination for the proposed HQ2. In the wake of Amazon pulling out of the deal they’ve been critical of the tech giant for not living up to their end of the deal.

The anti-Amazon contingent was comprised, most visibly by freshman US Congressperson Alexandria Ocasio-Cortez, someone who could be the subject of her own book based solely on her lack of economic understanding and related flubs (and likely, one day, will be if it hasn’t been done already).

In the wake of Amazon’s announcement that they are backing out of the HQ2 deal in New York, the pro- contingent was largely disappointed, while the anti-Amazon contingent was celebratory in their “victory.” Even going as far as to tweet their win and their “saving” New York taxpayers the $3 billion in tax breaks Amazon was promised.

The economic reality of the situation is that there are no winners on either side. Oddly enough, this split is not among party lines, as is often the case in today’s hyper-partisan political climate. The rift regarding  Amazon’s coming to New York is strictly between different, equally wrong, points of view among Democrats.

In the “winning” camp it is a classic case of cutting off your nose to spite your face. Ocasio-Cortez, or AOC as she is sometimes known, seemed to have completely missed the fact that there is a difference between tax breaks and being given money. Based on some comments she’s made it seems she thought, or wanted her followers to think, that New York was giving Amazon money to move HQ2 there. This is simply not the case. The much publicized $3 billion in question was a tax break.

Because AOC “saved” $3 billion by torpedoing the Amazon deal, New York misses out on an estimated $25-27+ billion in tax revenues, 25,000-40,000 jobs (many, if not most of which were to be in excess of $100,000 per year, if reports are to be believed), and an opportunity to count itself as the home of one of the world’s most successful companies.

On the other losing end, and they are both losing ends, are the politicians in the pro-Amazon camp. On one hand it seems they understand that companies have options and there are certain things that make a city attractive or unattractive to potential firms. Among these items are, obviously, tax rates. In striking a deal for a decreased tax rate de Blasio and Cuomo are committing a number of errors. Mistakes, which for whatever reason, have not been largely reported as best we can tell.

For one, agreeing to a lower tax rate for Amazon’s HQ2 is an admission that without such a carrot, New York is not attractive enough on its own merits to land such an employer. Additionally, and ironically, even with a $3 billion incentive Amazon still did not find the hassle they would be exposed to from the anti-Amazon crowd to be worth it – perhaps another billion would have done it.

Furthermore, not only is this agreed upon tax compromise an admission of unattractive tax policies but it also benefits Amazon relative to every other competitor or any business, for that matter, that is not getting such a sweetheart deal. I would expect other business people in New York to be up in arms over having to pay full price, while the guy who is their biggest competitor can come one step closer to putting the out of business due to tax breaks they were not entitled to, nor were they offered.

If lower taxes are more attractive to businesses, as New York politicians have admitted by their actions, it stands to reason that lower taxes across the board would attract companies to New York relative to other cities with higher tax burdens. By voluntarily negotiating lower tax rates for Amazon, the leadership of New York city and state are actively working against some businesses and in favor of others. They are playing favorites, advantaging some at the expense of others and maintaining overall high taxes while simultaneously admitting that high taxes make for an unattractive business environment.

It is not surprising that politicians, even those in the same party, can’t get on the same page regarding business and tax policy. It seems New York politicians have achieved the level of cognitive dissonance where talking out of both sides of their mouths becomes too confusing to settle on one official viewpoint.

The answer, of course, is obvious – lower tax rates, for all businesses, not just some. Politicians should not be picking winners and losers, because when they do, they are no longer even pretending to work in the best interests of their constituents. They may say otherwise, but actions speak louder than words.