> A normal way for governments to raise revenue in the United States is with property taxes. If you build a gigantic new office tower somewhere, then you are going to owe a lot of property taxes to the local government.
> So if you’re smart and have good lobbyists, you’ll say, “Hey, we were thinking of building a huge office tower in your city, but your taxes are so high. Maybe instead of paying the 8 percent property tax rate that’s on the books, we could pay 2 percent instead for the first 20 years.”
> The city may well agree to this proposal because 2 percent of a giant office tower is still a lot more than 8 percent of a parking lot. What’s more, bringing your office tower to town is going to generate a lot of sales tax and income tax revenue while probably helping to bolster property values across the board. So while reporters are going to write, accurately, that your company got millions of dollars in tax breaks in order to build your office tower, the city still ends up with more tax revenue than it would have had if you hadn’t come to town.
> So you can’t really say things like, “Instead of handing out millions in subsidies to Jeff Bezos, we should invest in the subway.” The subway doesn’t need a tax break; the subway needs actual money. And the tax breaks don’t represent money in hand that could be spent.
> What we want is a healthy form of competition where companies try to locate in cities that provide a high quality of public services relative to their tax revenue, so that cities have an incentive to try to govern themselves well. The current dynamic not only allocates too much surplus to rich companies, it undermines that healthy form of competition. Amazon doesn’t need to care whether New York City has cost-effective government or not; it just opts out of paying the costs.
> But the very fact that mayors are inclined to hand out these subsidies should teach them a lesson about tax policy.
(The lesson being that, if giving these tax breaks out is beneficial, maybe you should have been taxing something else in the first place.)
> A normal way for governments to raise revenue in the United States is with property taxes. If you build a gigantic new office tower somewhere, then you are going to owe a lot of property taxes to the local government.
> So if you’re smart and have good lobbyists, you’ll say, “Hey, we were thinking of building a huge office tower in your city, but your taxes are so high. Maybe instead of paying the 8 percent property tax rate that’s on the books, we could pay 2 percent instead for the first 20 years.”
> The city may well agree to this proposal because 2 percent of a giant office tower is still a lot more than 8 percent of a parking lot. What’s more, bringing your office tower to town is going to generate a lot of sales tax and income tax revenue while probably helping to bolster property values across the board. So while reporters are going to write, accurately, that your company got millions of dollars in tax breaks in order to build your office tower, the city still ends up with more tax revenue than it would have had if you hadn’t come to town.
> So you can’t really say things like, “Instead of handing out millions in subsidies to Jeff Bezos, we should invest in the subway.” The subway doesn’t need a tax break; the subway needs actual money. And the tax breaks don’t represent money in hand that could be spent.
> What we want is a healthy form of competition where companies try to locate in cities that provide a high quality of public services relative to their tax revenue, so that cities have an incentive to try to govern themselves well. The current dynamic not only allocates too much surplus to rich companies, it undermines that healthy form of competition. Amazon doesn’t need to care whether New York City has cost-effective government or not; it just opts out of paying the costs.
> But the very fact that mayors are inclined to hand out these subsidies should teach them a lesson about tax policy.
(The lesson being that, if giving these tax breaks out is beneficial, maybe you should have been taxing something else in the first place.)