Politician Inadvertently Illustrates Why Economic Development Incentives Are Dumb Public Policy


Amazon has been causing quite a stir with its announcement the building of a new, two-campus east coast headquarters to be located in Virginia and New York.

Those states lured the company in with hefty economic development incentives and – hold on to your hats – I find myself agreeing with newly-elected Democratic congresswoman and socialist activists Alexandria Ocasio Cortez on this one:

That’s a really solid point. Chalk one up for the idea that even stopped clocks are right twice a day.

Why does Amazon, one of the most successful companies in American history, need to be on the taxpayer dole? According to New York Governor Andrew Cuomo it’s because his state’s tax environment creates an uneven playing field (emphasis mine):

Gov. Andrew Cuomo defended the deal, arguing that New York has to offer incentives because of its comparatively high taxes. At 6.5 percent, New York’s corporate income-tax rate is only modestly higher than Virginia’s 6 percent, according to the Tax Foundation. But other business and individual taxes are higher in New York.

“It’s not a level playing field to begin with,” Mr. Cuomo said in an interview Tuesday. “All things being equal, if we do nothing, they’re going to Texas.”

He’s not wrong, but you know what also creates an uneven playing field? Singling out specific companies for extra special subsidies and tax breaks. Amazon is coming to New York because the company got a nice, cushy package from the politicians to do so. But what about all the other businesses?

Wouldn’t it make more sense to just create a tax an regulatory environment in New York that is competitive with Texas, and then just treat all the various businesses equally under the law?

This is the problem with economic development incentives. They’re fundamentally unfair, usually going to established companies who can afford to engage in the lobbying efforts it takes to win them. They also usually obscure other bad policies, like onerous tax or regulatory regimes, which make them necessary in the first place.

Local governments – from states down to municipalities – would be better off creating attractive business environments for all comers than engaging in these subsidy arms races which pit them against other local governments for the favor of high profile businesses.