Here's Why Cities Lose by Subsidizing Companies like Amazon

U.S. Secretary of State John Kerry sits with Washington Post reporter Jason Rezaian – who he worked to free after he was unjustly held in Iran for 18 months – his wife, Yeganeh Salehi, and Post owner Jeff Bezos, at a ceremony on January 28, 2016, to dedicate the new Post headquarters in Washington, D.C. [State Department photo/ Public Domain]

Chris Edwards, the director of tax policy studies at the Cato Institute, explains that while there will undoubtedly be certain winners in the cities that Amazon decided to open its new headquarters in, there will surely be losers as well. Edwards suggests that “Rather than subsidizing big businesses, the states should aim to create a diverse business ecosystem – an Amazon, if you will – by cutting taxes and regulations for all types of investment.”

He explains many of the drawbacks of such subsidies in detail, writing:

Fairness. With Amazon adding thousands of workers, hiring will be tougher for other tech firms in New York City and Northern Virginia. That would be OK if it was a free market, but the subsidies give Amazon an unfair edge. The subsidies will also give Amazon a leg up on competitors for its products and services.

Alternatives. New York and Virginia would have generated more durable growth by cutting business taxes across the board by $2 billion. That would have boosted investment by many businesses, and thus created more balanced prosperity. New York may have landed Amazon, but its high taxes are driving away other firms.

Earlier this year, for example, New York finance firm Alliance Bernstein announced it is moving to Tennessee for lower taxes.

Diversity. Industry clusters such as Silicon Valley are successful not because they have big companies, but because they have a start-up culture that nurtures growth companies with venture capital. Rather than favoring big companies, state and local politicians would better spur growth by reducing tax and regulatory barriers to spawn a diversity of new companies.

Corruption. Allowing politicians to hand-out business subsidies at their discretion generates corruption because the hand-outs get swapped for campaign cash and outright bribes. State film tax credits in places such as Iowa and Louisiana are plagued by corruption, as are affordable housing subsidies to developers in places such as California and Florida.

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E.J. Smith is the Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH, where he completed course-work in Practical and Defensive Handgun, Conceal Carry Pistol, Shotguns, Precision Scope Rifle and Kidnapping Prevention. E.J. plays a Yamaha Recording Custom drum set with Zilldjian cymbals. His first drum set was a 5-piece Slingerland with Zilldjians. He grew-up worshiping Neil Peart of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West and Paris. Please get in touch with E.J. at ejsmith@youngresearch.com. Sign up here to receive all the best content from Richardcyoung.com each week.