Tags: Money | Presidential History | Supreme Court | amazon | congress | gates

Outlaw Companies' Playing Cities for Tax Breaks

an amazon fulfillment center in las vegas nevada

An Amazon.com fulfillment center in Las Vegas, Nevada. (Jonathan Weiss/Dreamstime)

By Wednesday, 20 February 2019 10:56 AM Current | Bio | Archive

Amazon recently canceled plans to build a new headquarters in New York City.

It walked away from $3 billion in tax concessions and other "incentives" offered by the city and state if it would bring in 25,000 new jobs — about $120,000 per job. Due to local resistance, Amazon decided that New York would not be a great location after all.

If not for the hassle from its opponents, the deal would have served the mutual interests of Amazon and of New York. Amazon would have saved billions, while New York would have gained jobs and tax base that might otherwise have gone elsewhere. Such deals, though, reflect badly on the political and legal environment in today's United States.

Becoming more attractive to business is a legitimate government goal.

If high taxes repel businesses, a state or city can reduce them. But legitimate taxes, like all genuine laws, must apply the same rules to one and all. A state or city seeking to attract businesses should therefore reduce the tax rate not just for Amazon but for all companies.

Deviations from this principle open the door to corruption, influence-peddling, and favoritism. We lose the protection from arbitrary government provided by the rule of law. Crony capitalism undermines public faith in the legitimacy of the American economic and legal systems.

Imagine that New York offers to tax Bill Gates at only 2 percent if he would move there, a substantial discount from the 8.82 percent paid by other rich residents. It would increase state tax revenues if Gates moved in. Two percent of something (a rather large something!) comes to more than nine percent of nothing.

Although New York would benefit from offering such a discount to Gates, everyone would understand that it would be an outrage, a manifest violation of equal protection under the law. Why then do we tolerate discriminatory taxation when rich corporations rather than individuals are the beneficiaries?

The easiest way to eliminate tax favors would be for a court to strike them down as violations of the Fourteenth Amendment: " (N)or shall any state . . . deny to any person within its jurisdiction the equal protection of the laws."

Since corporations have long been recognized as legal "persons," — see, most recently, Citizens United v. FEC 558 U.S. 310 (2010) — the Equal Protection clause should apply to them just as it does to individuals.

However there may be technical obstacles to bringing a lawsuit, which generally must be brought by a party that is particularly harmed. The harms caused by crony capitalism are widely distributed throughout the whole country, and such harms are best addressed by legislation, not litigation.

Absent a judicial decision based on the Constitution, Congress could and should outlaw preferential tax treatment of corporations. It could make it illegal for states and cities to engage in such favoritism. Or it could cut federal funding from cities or states that engage in this practice.

Congress clearly has the authority to prohibit cities and states from granting special tax favors to a corporation. The Fourteenth Amendment, in which the Equal Protection clause is incorporated, provides that "The Congress shall have power to enforce, by appropriate legislation, the provisions of this article."

One way to enforce such a law might be to levy an additional federal income tax on any corporation getting special tax treatment, with a surtax equal to the amount the corporation saves from the concession.

As an alternative, Congress could cut off or reduce federal funds for governments which give preferential treatment to any corporation. This approach is sometimes used when Congress pursues goals where its constitutional jurisdiction to enact laws is doubtful.

For example, states rather than the federal government have jurisdiction over highways and traffic laws. So when President Nixon proposed a national speed limit to conserve gasoline during an emergency, Congress did not enact the speed limit as a federal law.

Instead, it cut off payments from the National Highway Trust Fund — financed by the federal gas tax —to any state whose legislature did not enact a 55 mph speed limit. This and similar legislation was upheld by the courts.

However thanks to a conceptually incoherent Supreme Court decision about Medicaid expansion, the courts might object if Congress cuts off too much money from states violating its new legislation. So the possibility of using this approach is dubious.

Congress clearly has the authority to legislate directly here, making it unnecessary to use its power of the purse. To prevent Amazon and other corporations from playing cities and states off against each other in the search for tax favors, Congress should just draw the line and make this game illegal.

Paul F. deLespinasse is Professor Emeritus of Political Science and Computer Science at Adrian College. He received his Ph.D. from Johns Hopkins University in 1966, and has been a National Merit Scholar, an NDEA Fellow, a Woodrow Wilson Fellow, and a Fellow in Law and Political Science at the Harvard Law School. His college textbook, "Thinking About Politics: American Government in Associational Perspective," was published in 1981 and his most recent book is "Beyond Capitalism: A Classless Society With (Mostly) Free Markets." His columns have appeared in newspapers in Michigan, Oregon, and a number of other states. To read more of his reports — Click Here Now.

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To prevent Amazon and other corporations from playing cities and states off against each other in the search for tax favors, Congress should just draw the line and make this game illegal.
amazon, congress, gates
Wednesday, 20 February 2019 10:56 AM
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