State and local governments grant tax credits and incentives to large corporations for choosing to setup shop in their cities. The lure of creating new jobs and boosting the local economy spells success for state and local government officials. Elected officials, in particular, can fuel their campaigns with success stories of job creation and economic development. But does the average citizen really understand how these deals work?
With such an upside, governments seem foolish not to grant these benefits. When large corporations come to town, they can provide a boost to the local economy in many ways. Whether it’s a new corporate office, distribution center, manufacturing facility, or combination thereof, this often requires the construction of a new building or the renovation of an existing one. The effort typically employs architects, developers, general contractors, and interior designers along the way. Shiny new jobs for the operation are then created, thus giving local constituents the opportunity for employment. As more people are employed, more taxes are paid at both the corporate and individual levels which generates more funds for taxing authorities to deploy. Local businesses like restaurants and boutique stores also benefit when these companies come to town. With more citizens who have disposable income, local businesses see an uptick in their sales and governments see their coffers grow through increased income tax, sales tax, and/or property tax.
However, here are a few things to note about the mechanics of these incentives. In most cases, they must be earned by the company through performance. In other words, a company has to invest capital and employ people in order to receive them. These incentives do not equate to money sitting in a bank account or a general fund that’s diverted, rather they typically are earned. In the case of Amazon and their proposed $2.6 billion tax credit in New York:
Excelsior Program would provide $1.2 billion in refundable tax credits if Amazon created 25,000 net, new jobs by 2028.
Capital grant of $505 million as a reimbursement for the cost of building their new headquarters.
$900 million through the city’s REAP program, if they meet the city’s requirements. (Note: this program is available to any business that meets the REAP requirements).