2017.11.01 Playing Monopoly

Amazon is looking for a new place to build a new head quarter. And all of USA seems to have lined up to bid them welcome with treats from a giant cactus to a $7 Billion tax deduction.

You read that right. New Jersey has offered Amazon a $7 Billion - that is B like in BILLION - gift paid by the taxpayers.

Last year, the EU, Ireland, and Apple had a conflict resulting in that the EU deemed illegal a tax subsidy that Apple had gotten to move to Ireland. Apple was kindly asked to pay €13 B in back taxes to Ireland.

The EU verdict has naturally been appealed, but the difference in thinking is worth paying attention to.

Why would governments fall over each other to get a company to establish a presence in their city, state, or country? The answer is naturally that they are expected to generate a lot of new jobs directly and indirectly by a trickle down effect in the form of local vendors and suppliers getting additional business.

It is a good thing to get a big company to locate in your neighborhood - provided that your local economy is not already running in overdrive. There is really nothing gained by Amazon moving their new headquarter to San Francisco. And there is really nothing gained if the company who gets the subsidy - a tax-credit is also a subsidy - randomly benefits one company while randomly hurting their competitors as California's state auditors have found such subsidies to do.

If all tech companies - or all companies period - got the same agreements with the Irish government that Apple got, the EU would have had no issue with Ireland having different rules than the rest of the EU member countries. The issue the EU is addressing is that other companies don't get to play by the same rules as Apple. If you or I wanted to move a mom-and-pop tech business to Ireland, we would not get the same kinds of subsidy/tax deduction that Apple evidently negotiated. And that skews the playing field.

If big companies by political influence can increase their competitive advantage by having "their own tax code" compared to smaller players, the government - not the merit of products and services - decides who are winners and losers in the market place.

We have reached an inflection point where companies have become more powerful than many of their government counterparts. When that happened during the Industrial revolution, government introduced anti-trust regulations, from The Sherman Act in 1870 and onward. We are now in the information and technological revolution and the same issues creep up: Companies abusing the power of their size.

Perhaps that is why we have supernational organizations like the EU; organizations with enough muscles to go up against corporate interests so big that even national governments "roll over and play dead". And we also have auditors who, hopefully, keep politicians' feet to the fire.

Why should some of the world's biggest and most profitable companies be subsidized by taxpayers?

If New Jersey really has $7 Billion to spare (or the local tax value of a deduction that size), why don't they go help Puerto Rico? That is at least part of the way in the direction of the Amazon.