Subsidies

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.

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  1. [I]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.
    [/I]

    Fuck yeah!

  2. Now if only Southwest could find a suitable airport in Atlanta (as in not Hartsfield)

    1. Worst airport in America.

      1. Have you been to Houston?

        1. Houston is the counter-example for most sentences of the form “Worst something in America”

          1. yeah, yeah.. the airport is awful.

            1. … but I’d take a shitty, dirty, ugly pos airport and no income tax any day 🙂

        2. Hobby or Bush?

      2. I bet St Louis would give it a run for its money.

        1. OTOH, the food at O’Hare just gives people the runs.

          1. That gets my vote for worst major airport.

    2. When Gwinnett or Cobb or somewhere builds an airport and lands SWA, I will start flying to ATL instead of driving (Im there 1-2 times a year, and flew it once in the last decade, and that once was more than enough).

      1. If only the Dekalb County Airport had a longer runway.

  3. I don’t get it. I understand why Amex wouldn’t go to a crappy location just for a tax subsidy, but given their selection, why not take a tax abatement at their preferred location?

    I find it hard to believe that the compliance audit would cost more than the tax abatement was worth. NFW they give a shit about increased tax burdens elsewhere in the economy.

    1. Most likely the strings that would have been attached were not worth the amount of the subsidy.

  4. I’m concerned that these companies aren’t on board.

    So you didn’t take our offer? Nice little company you have there, AmEx, sure would be a shame if something legislative happened to it.

  5. Just wait until NC tries to pull a MD on them, as in the Wal*Mart experience. Never trust a government.

    1. Hearing people call NC the “most progressive Southern state” used to be heartening to me. Now, it kinds of scares the hell out of me. It almost makes SC look like an appealing locale.

      1. Whatever “progressive” means. In the catholic sense of the word, that’s probably Florida, which is both reactionary and innovative in the government sense.

  6. Where’d they get the pictures of Epi in his(?) many incarnations?

    1. I’m an AMEX member. I’ve had an AMEX Gold for 10 years. They took some pictures of me over the years for promotional reasons, so that’s what you see there. Personally, I liked wearing the one on the right the most. It made me feel like I was sort of in sun god robes with a thousand naked women screaming and throwing little pickles at me.

      Membership has its privileges.

      1. Do each of those cards work, or are they props?

      2. Epi-Amun Ra.

        Do you have a Stargate(tm) too?

        1. He’d be happier if you called him Epi-Chris-Knight.

          1. So many directions to go with this one….

          2. Does that make you Lazlo Hollyfeld? You do tend to wander around in your pajamas and mumble a lot. You daughter told me; I’ll let you guess when.

            1. Epi, do you wanna borrow my pajamas?

              1. I went to Florida, and I saw the most disgusting thing I’ve ever seen in my entire life.

                ProL in his pajamas.

                1. But Florida is hot! Were you hungry? And that’s a wonderful story, Epi. I noticed you stopped stuttering.

                  1. I’ve been giving myself shock treatments.

                    1. Up the voltage.

                    2. Always…no…no..never, forget to check your references.

  7. After looking at that picture I suddenly have a craving for flapjacks.

    1. Whoa.

  8. Sematech has slowly been moving from Austin to New York and is now moving their research headquarters due to Austin losing the subsidy game.

  9. Must be nice being American Express. Truck loads to cash.

    Lou
    http://www.complete-anonymity.at.tc

  10. A company makes a business decision for business reasons rather than tax subsidy ones, and that’s so extraordinary it occasions all this coverage?

    We are doomed.

  11. Frankly, I think these “special” tax breaks should be considered violations of the equal protection clause of the Constitution, and declared unconstitional. It should be obvious to anyone that they are an economic mess, leading to all sorts of mis-allocated capital, and leading directly towards a race to the regulatory and tax bottom.

    1. I agree on the equal protection clause, but disagree on the effects: by providing individual actors with special tax breaks rather than treating everyone the same, the current regime retards tax competition.

      If the state starts treating Nucor steel & the small machine shop around the corner the same way, then the big winner would be the machine shops.

      Of course, treating everyone the same would end the incentive for people to pander to legislators, and thus your proposal would never be acceptable to politicians.

      Since the court system has long violated basic human rights in the name of social engineering, much of which is accomplished precisely by favoring particular individual actors or classes of actors, the courts are not likely to move in a libertarian direction of ending special favors for special interests.

      1. The problem that I have with libertarians is that they are so anti-tax that while they will fight “special favors” that involve spending, they will not fight ones that involve tax breaks.

        Libertarians need to be more strict about calling for *broad based* tax cuts but ending these special ones.

        1. Bullshit. I prefer everyone to pay an equal tax rate, than to havestupid social engineering tax breaks for this and that, even if it means I pay more taxes.I see market manipulation with tax breaks as a bigger problem than equal high taxes for everyone.

  12. The most important consideration for them was the deal they made with Duke Power. They are building a data vault at that location and need a reliable and large scale grid to pull it off.

    They are already one of the largest employers in the greater metropolitan area, with extensive infrastructure both in the human resources they have cultivated, and other assets.

    1. My only worry given the location is that they will bring in some of their guys from out of state who will crowd out my tee times.

  13. Maybe if these jurisdictions would keep spending down and stick to a low tax rate they wouldn’t need these subsidies to attract businesses.

  14. “Why can’t the next company see the same benefits of locating in Guilford County that Amex saw?”

    Because prices are set on the margin.

    What was that supposed to be–the Labor Theory of Tax Incentives?!

    I can’t go to the grocery store and complain that the price of milk has gone up since the last time I was there–what’s the price last week got to do with anything?

    If you want the next guy to move there, you’re gonna have to give him what it takes to get him to move. What’s the last guy that moved there have to do with anything?

    This is one of the reasons why markets are so much better than democracy by the way… People have this weird idea that everyone should be treated the same–and markets have no such silly delusions.

    Here’s a commercial real estate Shultzism you can take with you–“Deals are like snowflakes.”

    Can you imagine a world where municipalities treated every deal the same? …even if they were completely different? What a stupid world that would be.

    I mean, municipalities competing with each other to see who can give the biggest tax breaks to business–I’m supposed to think this is a problem for capitalists?

    You know what’s really stupid? How local businesses have to chip in so much both in development fees and property taxes to pay for shit like public schools that they don’t have anything to do with. You want to make them pay for street upkeep to whatever extent based on traffic studies? Okay. I can see that.

    But why am I paying for your crappy public schools? Why am I paying for your stupid city parks? I understand–these guys knew the score when they chose their location…

    But if I’m an Amex shareholder, I’m pissed about this. In fact, I want an investigation…

    Leaving what may have been millions of dollars in savings on the table for what some people are calling “altruism”?! If I’m a shareholder, that isn’t “altruism”–that’s incompetence.

  15. You know what’s really stupid? How local businesses have to chip in so much both in development fees and property taxes to pay for shit like public schools that they don’t have anything to do with.

    Yeah, other than training future employees (and customers), what does a business have to do with its local public schools?

    duh

    1. I’m sorry because I want to employ tax payers to flip burgers for me, I have to pay for schools?

      Why isn’t it enough for a buseinss like AmEx to pay some kid’s parents for their work? Maybe the people who decide to live there and send their kids to school should pay for the school!

      Because I want to fix cars for a living, I have to pay for the local school?

      That’s absurd.

  16. A state trolling for businesses with tax money is like a guy taking his wife’s purse to the bar to use her money to pick up girls. It’s unimpressive. A girl with any sense will realize that the guy will use her money too as soon as he gets the chance.

    What’s puzzling is that Amex is going home with the guy without even getting drunk first.

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