Tags: IRS | Trump Tax Reform | amazon | oregon | washington

Don't Force Cities, States Into Tax Fight Games

Don't Force Cities, States Into Tax Fight Games

Tuesday, 05 December 2017 05:09 PM Current | Bio | Archive

Amazon finds it inconvenient to double its huge Seattle headquarters and is looking for a suitable place to build a co-headquarters. More than 200 cities and regions are competing for this honor.

Unfortunately most contenders are not just pointing out their advantages of location and availability of skilled labor. Many are also offering to reduce or eliminate taxes that large corporations like Amazon would otherwise pay. Newark and the state of New Jersey, for example, are offering a credit of $7 billion dollars against future taxes if Amazon will just locate there.

Offering tax concessions makes short-run sense, since the favored city may still collect some taxes from Amazon and the additional employment will pep up their local economies. The company plans to hire about 50,000 people, with an annual payroll of about $5 billion, at the new location. Other local businesses will also benefit from the money injected into the area by Amazon and its employees.

It is also understandable why Amazon's decision may be based on the best offer. Like other corporations, Amazon is not in business for its health.

Of course Amazon is not the only company seeking tax concessions before siting new plants. Fourteen years ago Boeing extracted concessions worth several billion dollars before expanding production in its native Washington state rather than somewhere else. More recently it got more than a dozen states into a bidding war before deciding to build a new plant in South Carolina. Still more recently, the Oregon governor called a special session so the legislature could authorize him to lock in the state’s current tax policy for Nike so it would build a new factory in Oregon.

Cities also commonly use tax breaks as well as public money to subsidize privately built convention centers and stadiums for immensely profitable professional athletic teams.

Whatever the outcome of the current bidding for Amazon, this type of bidding war clearly is totally unprincipled. Making an area more attractive to business is a legitimate government goal. If high taxes repel businesses, it is perfectly proper for a state or city to reduce taxes in order to attract more businesses. But legitimate taxes, like genuine laws of all kinds, must apply the same rules to one and all. One should reduce the tax rate not just for Amazon or Boeing but for all companies subject to the same type of tax.

Deviations from this principle open the door to corruption, influence-peddling, and favoritism and deprive us all of the protection from arbitrary government that is provided by the rule of law. Crony capitalism can only undermine public faith in the legitimacy of the American economic and legal systems.

The state of Washington has no personal income tax. But imagine that it has a 3 percent personal income tax and that nearby Oregon offers to tax Microsoft's Bill Gates at only 2 percent if he moves to Oregon. This would be a substantial discount from the 9 percent income tax paid by other Oregonians, but state tax revenues would increase if Gates moved in, since 2 percent of a large amount of money comes to more than 9 percent of nothing.

Even though it would make sense for Oregon to offer such a discount to Gates, everyone would understand that this would be an outrage. It would be an obvious violation of equal protection under the law as guaranteed by the Fourteenth Amendment..

Since everybody understands how unfair such unequal treatment would be, concessions on personal income tax are not handed out. So why are we willing to tolerate discriminatory taxation when rich corporations rather than individuals are the beneficiaries?

Over the long haul, states and cities which play these games with corporations probably will not come out ahead financially. But states and localities are unlikely to stop offering discriminatory tax favors to corporations merely because the practice is unprincipled and counterproductive in the long haul, since interests usually outweigh principles. Like a country than cannot afford to abolish its military forces unilaterally, they cannot refuse to play the game while others continue to do so..

A federal court could strike down tax favoritism as a violation of the equal protection clause. If courts won't or don't do this, Congress could and should enact legislation calling a halt to it. In the long run cities and states would be better off if they were not forced to play this dirty game.

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 1981 and his most recent book is "The Case of the Racist Choir Conductor: Struggling With America's Original Sin." 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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A federal court could strike down tax favoritism as a violation of the equal protection clause. If courts won't or don't do this, Congress could and should enact legislation calling a halt to it. In the long run cities and states would be better off if they were not forced to play this dirty game.
amazon, oregon, washington
Tuesday, 05 December 2017 05:09 PM
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