Monday, October 23, 2017

To Avoid ‘Amazon Wars’, End Corporate Taxes

Amazon has been soliciting bids from states for the purpose of locating its proposed second headquarters. The bids include things like a description of available talent and educational facilities, transportation infrastructure, and so on. But it also includes favorable tax treatment.

This is a big deal. Amazon’s new headquarters is expected to directly bring 50,000 new jobs, and many more in secondary economic effects. New Jersey’s bid includes $5 billion in state tax concessions, and another $2 billion in local property tax concessions. The New Jersey Star-Ledger pushed back against the “bipartisan strategy” of tax incentives that states use to attract business investment. In N.J. escalates destructive Amazon war, the Star-Ledger editorialized:

Desperate to lure jobs, towns and states compete with tax incentives. The loser is the public, the winner is rich corporations, and New Jersey is now a chief enabler.
We're the bad boy of this "Bachelor"-like competition, offering some of the biggest subsidies, and forcing other states to do the same. Never has that been more apparent than in the escalating interstate fight over Amazon's second headquarters.
Gov. Chris Christie just offered the online retail giant $7 billion in city and state tax incentives to locate in Newark - nearly the biggest tax break ever, second only to Boeing's $8.7-billion handout from Washington state.

These are billions we could use to shore up transportation and housing, to improve our business climate and attract even more companies. Which is what we should be doing, instead of escalating this mutually-destructive bidding war. States should enter into a non-aggression pact, agreeing not to engage in these subsidy battles. If companies were forced to settle without them, the winners would be the taxpayers.

Yes. And states with the most favorable tax climate. Where does NJ rank?

I left these comments:

I agree that the tax incentive game is unfair, because it favors some companies over and/or at the expense of others.

But I think this kind of political bidding war is a legitimate and healthy form of competition. Why should politicians be able to go on taxing unfettered? Why should states be shielded from the destructive consequences of their own policies?

And if you really want to tamp the competitive pressure on New Jersey’s, get rid of the corporate income tax.  A business corporation—what Steve Jobs called “one of the most amazing inventions of humans”—is a legal and abstract framework for people to work together toward the a common productive mission. The money the company earns in revenues and profits stays with the company to further that mission, until and unless it is paid out in employee compensation, dividends, interest, and capital gains for investors, and mass market products to consumers—at which point it is taxed through sales taxes.

When you tax corporate profits, you are in essence double-taxing employees, investors, and consumers. In addition to their direct taxes, corporate taxes force employees to pay through lower wages, investors through lower income and capital gains, and consumers through higher prices and less innovation. Despite appeals to envy by politicians (and editorial writers) demagoguing about “rich corporations,” it is actually anyone associated with the corporation who pays the price of the corporate income tax, one way or another. That’s what makes the corporate income tax so dishonest and regressive. We can see the property taxes we pay. We can see the personal income taxes. We can see the sales taxes. But it’s not so clear that we are actually the ones paying the corporate income tax. The corporate income tax is a way for politicians to suck more money out of all of us without us seeing it.

The “rich corporations”? Do not ask for whom the corporate tax tolls. It tolls for us. In the end, only individuals pay taxes, because a business corporation is really just an association of individuals. NJ has the third highest corporate tax rate among the states; a flat 9%. No wonder NJ politicians have to “offer” big tax breaks.

New Jersey has a lot going for it. But NJ has the worst business tax climate in the nation. Instead of the $billions in annual tax breaks, we should become the 7th state to go corporate tax free. Abolishing the corporate income tax could substantially reduce the need for the state to bid for business and make NJ much more attractive to business. If lower taxes are good at attracting job-creation—and that’s the whole point of “tax incentives” competition—why not make the incentive permanent? And it would get rid of the most dishonest tax we have—the corporate income tax.

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1 comment:

Nina Athena said...

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Tax Professional