Policy

AmEx: Thanks But No Thanks for the Subsidies

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what's weirder: these dresses or turning down subsidies?

American Express just announced that it will be building a $400 million data services facility in North Carolina, and that it will be turning down subsidies/tax incentives offered by the state:

American Express probably hasn't put an end to corporate incentives in Guilford County, but it's made it harder for other companies to ask.

The financial services giant chose eastern Guilford County locations for a $600 million data center last week and never asked for millions of dollars in incentives that the Greensboro City Council and Guilford County Board of Commissioners were prepared to consider. Amex found other reasons to make its selection….

Even so, all companies are in business to make a profit. Incentive money was practically there for the taking, and Amex really couldn't be blamed for seeking the best deal it could get, here or somewhere else. It's practically unheard of for a firm offering a project of this magnitude not to ask for, and get, tax breaks and other inducements. It showed uncommon altruism by declining to press its advantage.

Now, thanks to the Amex decision, the future advantage may shift a little.

The next company asking for incentives can be held to the American Express standard. Why should it receive tax breaks when Amex, with its mega-investment and willingness to pay its full tax obligation, declined? Why can't the next company see the same benefits of locating in Guilford County that Amex saw?

But it may not be altruism, as the local editorial writer above suggests. Choosing a sub-optimal location because of subsidies is, well, suboptimal; subsidies often come with strings attached; and when companies bail after the subsidies end and head out in search of the next municipal suckers, they wind up with a big moving bill and a lot of bad local PR.

The Tax Policy blog explains selfish reasons companies might say no to free money:

A common view among lawmakers is that if companies are given a choice between special tax incentives or more neutral, broad-based tax relief, they'll favor tax handouts every time.

This is often not true. Companies today are increasingly aware of the dual-edged nature of targeted tax preferences: they may provide short-term economic stimulus, but ultimately they increase tax complexity and compliance costs, encourage costly industry rent seeking, and raise tax burdens elsewhere in the economy.

In other subsidy rejection news: Earlier this month, Southwest announced plans to begin flying to Charleston and Greenville-Spartanburg, without waiting for the South Carolina legislature to finish debate on a subsidy to attract low cost carriers. 

Via Sometimes Right.