One of the major news stories last week was Amazon’s announcement that they are abandoning their plans to locate part of HQ2 in New York City. Facing pressure from local politicians and concerned citizens over a variety of issues, including substantial tax giveaways from the city and state governments, Amazon decided not to move forward with plans to establish a presence in Long Island City in Queens. This news, combined with some recent news stories about the Foxconn deal in Wisconsin, have once again shed light on the cost of corporate subsidies and tax giveaways. Often, these corporate handouts cost significantly more than the cost of funding public pensions.
One of the most striking aspects of Amazon’s quest for HQ2 was the desperate scramble among dozens of cities and states to offer subsidies and tax giveaways to lure the company, which is the third most valuable company in the United States and is owned by the most wealthy individual in the world, Jeff Bezos. While many of the bids for HQ2 were never publicly disclosed, some were. New Jersey, for example, a state with notoriously underfunded public pension plans, was prepared to offer $7 billion in tax breaks to the company. The city of Chicago and state of Illinois- both of which have shortchanged public pensions over the years- were prepared to offer more than $2.3 billion to lure Amazon. New York City and the state of New York offered nearly $3 billion in various incentives.
The deal for Chinese firm Foxconn to open a major new plant in Wisconsin was controversial from the start, but recent news reports suggest the planned manufacturing site may never yield the promised jobs. The state of Wisconsin awarded $4.5 billion in tax giveaways to Foxconn in exchange for the firm building a new plant in the state. When the deal was announced, the Wisconsin Legislative Fiscal Bureau, a nonpartisan government agency, estimated the state would be in the red on the deal until at least 2042, and even that projection didn’t account for the kinds of increased public-services costs associated with population growth.
In 2017, Good Jobs First released a series of reports comparing the cost of corporate subsidies and tax giveaways to the cost of funding public pensions in various states. In nine of the twelve states studied, the cost of corporate giveaways exceeded the cost of funding public pensions; in four of those states, corporate giveaways were more than double the cost of pensions. In the other three states, the cost of funding pensions exceeded corporate subsidies and tax breaks, but many corporate giveaways were not publicly disclosed. In Alabama, for example, the cost of five subsidy programs was undisclosed, but it likely would have added significantly to the total cost of corporate giveaways in that state.
Many politicians seem to have poorly aligned priorities when it comes to spending public money. Public pensions are proven economic engines, generating $1.2 trillion in economic output in 2016 and supporting 7.5 million jobs. The cost of funding pensions is also lower than the cost of corporate subsidies and tax giveaways. In Kentucky, another state with a long history of underfunding public pension plans, the state actually gives away more each year through tax expenditures than it collects in tax revenue. Also, the annual cost of funding pensions in Kentucky is only two-thirds of the cost of those corporate giveaways. The lesson is clear: rather than handing out corporate subsidies and tax giveaways for promises of jobs that often fail to appear, cities and states should focus on fully funding public pensions which not only provide a secure retirement to public employees, but also benefit local communities and main street businesses.