New York Gets Prime Deal

Corporate welfare is receiving a bad rap as Amazon chooses Virginia and New York to split its second world headquarters. New York has promised more than $1.5 billion in incentives to attract Amazon’s 25,000 tech jobs to Long Island City. This is an excellent deal for NYC and NYS. All the critics must just be jealous because their city lost in the bidding war. Those within New York that are scoffing need to stop listening to the likes of Alexandria Ocasio-Cortez and television pundits and consider the boon that’s coming their way.

For once, I agree with New York Governor Andrew Cuomo who said that New York is giving up “nothing” in this deal. He has come under criticism even from those of his own Democratic party. Many are incorrectly saying that New York taxpayers are paying $1.5 billion to the richest man in the world instead of using this money for crumbling infrastructure and other needs.

The NY arrangement consists of $1.2 billion in tax credits over the next ten years. Tax credits offset any taxes that would be owed by Amazon to the state of New York. This means that New York is not paying $1.2 billion to Amazon. They’re just not receiving it as future tax revenue. Guess what naysayers? If Amazon didn’t choose New York, the state wouldn’t have received it anyway. And, it’s only for ten years. Presumably, after a decade, the tax credit will go away.

So that means that the actual amount taxpayers will be on the hook for is only about $300 million. A small price to pay for what the city will receive in return. When you take into account that Amazon will invest a whopping $2.5 billion within New York to setup their operations, the economy within NY will see an immediate shot in the arm.

The benefits for New York out way any outlay that New York has to spend on infrastructure, job training, a helicopter pad or anything else. Consider the 25,000 jobs. According to ZipRecruiter, the average pay for an Amazon employee is $99,809 a year and Amazon has stated that these jobs would average $150,000 per year. Let’s say $2,000 per week conservatively and multiply that by 25,000 jobs. We get $50 million in salaries paid out per week.

New York will, of course, tax this income at over 6%. My estimation is that it will equal about $140 million per year in income tax revenue for the state. Over the next ten years, this comes to $1.4 billion just from these 25,000 workers’ state income taxes. In addition, there are the taxes that will be received from sales taxes and property taxes that these 25,000 employees will fork over.

This $50 million paid out weekly will be mostly consumed within NYS. This means that the portion that’s not saved or confiscated as taxes will be consumed weekly to landlords, grocers, restaurants, retail stores, transportation and to other businesses. All this consumption becomes income to all these businesses who, in turn, will consume their portion of this new income, which becomes income to others. All this turnover means more jobs and even more tax revenue for NY. The total amount will dwarf the $1.4 billion received directly from the new hires. Some have estimated that total tax revenue over the next ten years would increase by $10 billion by landing Amazon.

Does Amazon need welfare? Of course they don’t. They didn’t base their decision solely on tax credits. The cities that submitted proposals put their best foot forward, which included tax savings, tech talent, higher education commitments for future workers and outright cash. These cities’ best proposals weren’t giveaways, but a small down payment to receive substantial economic growth.

The only downside is that competitors may not receive the same tax breaks. But tax breaks didn’t propel the tiny online bookseller to become the giant it is now. Amazon met market demand and grew. Other smaller businesses that want to dethrone Amazon don’t need tax breaks to succeed. They too just need to meet market demand by doing something better than Amazon.

Some say that NY shouldn’t have offered any incentive and Amazon would have selected them regardless. While this may have been true, it wasn’t guaranteed. There were plenty of other cities with tech hubs that were vying to attract Amazon. The reason was the $50 million in weekly salaries. The small investment is worth what NY will receive in the long run. It reminds me of another small investment to receive fast two day shipping throughout the year. It as well as that are a prime deal.

© 2016 - 2018 Donald Ax. All Rights Reserved.