Corporate Tax Cuts, Interstate Competition, and Amazon

The interstate bidding war over Amazon’s new headquarters may have effects on communities and regions other than the creation of new jobs.  Robert Reich (Inequality Media) argues that the government should not provide tax cuts to corporations, while Brian Alexander (The Atlantic) posits that competition between cities economically injures the country.

What do you think?

Do Corporations Need a Tax Cut? The Problem With Courting Amazon
Screenshot 2018-01-18 at 2.46.11 PM.png “One advantage of the American system, with powers divided between states and a national government, Rolnick and Burstein pointed out, is that states are free to compete with each other by trying different taxing and spending allocations. For example, one state may tax a bit more and provide more public goods—better schools, cheaper health care, smoother roads, more-pleasant parks—in return. Another state may tax less, and spend less, on such public goods. People and businesses could then choose where they preferred to live and locate. Those choices, in theory, help select which balance of taxing and spending emerge as the best.

But this competition is perverted when it’s applied to individual corporations. If one state fends off a poaching attempt by another state by offering bigger payouts, Rolnick and Burstein wrote, ‘competition has simply led states to give away a portion of their tax revenue to local businesses; consequently, they have fewer resources to spend on public goods, and the country as a whole has too few public goods.’ If a state successfully draws a business into its borders through tax benefits, they go on, ‘there will be fewer public goods produced in the overall economy because, in the aggregate, states will have less revenue.’

Rolnick and Burstein believed there was a solution to all this: federal legislation. Congress, using its power to regulate interstate commerce, could change the way relocating companies get taxed (taxing them based on the estimated value of the benefits, perhaps) or threaten to withhold federal funds from states that try to poach businesses by offering to give up taxes. What with 238 cities having vied for Amazon’s favor—and Amazon now having made a show of narrowing its list down to 20 cities—such legislation seems mirage-like at the moment.”

Read the whole article here.

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