Opposition to Amazon subsidies spans the political spectrum

By the conventional, unidimensional view of politics, I am about as far away as one can get from Rep.-elect Alexandria Ocasio-Cortez (D-N.Y.).

She is an avowed socialist; I believe socialism was one of the most disastrous experiments in human history. She supports single-payer health care; I’d like to see a wall of separation between government and health care.

While she supports higher taxes, more significant regulation and greater government spending, I believe that three decades of peer-reviewed research on economic freedom suggests that we need more, not less, of it.

But not all political positions fall neatly into a single dimension. And these are not conventional times.

I recently found myself nodding in agreement as I read the representative-elect’s Tweets about Amazon’s multi-billion-dollar subsidies from New York and Virginia. 

“Amazon is a billion-dollar company,” she wrote last week. “The idea that it will receive hundreds of millions of dollars in tax breaks at a time when our subway is crumbling and our communities need MORE investment, not less, is extremely concerning to residents here.” 

The leftists in her district can applaud her for highlighting the tradeoffs: More public money for Amazon means less public money for other priorities.

Hundreds of thousands of home-grown New York businesses are no doubt acutely aware that the state’s $1.7 billion in subsidies for Amazon could have instead been used to reduce the state’s comparatively high tax burden. 

Governor Andrew Cuomo (D-N.Y.) recently conceded that these rates make the state uncompetitive, arguing that the subsidies are needed to make up for New York’s tax burden: “If we do nothing, they’re going to Texas.”

My colleagues Michael Farren and Anne Philpot figure that, absent the Amazon subsidy, the state could have cut its corporate income tax by about 1.4 percent. That’s not nothing, especially when you consider that this is just one of many subsidies the state dispenses.

As an economist, I’m glad that Ocasio-Cortez seems to be aware that subsidies don’t work. My colleagues and I have spent much of the last few months pouring over studies of targeted subsidies. In all, we’ve looked at 89 peer-reviewed studies.

A majority of the studies find that subsidies either have a mixed or insignificant effect on the economic welfare of the communities that offer them. Just 4 percent of tests find a positive effect, though it is generally quite small.

And a slightly larger share of tests — 5 percent — actually find that subsidies correlate with worse economic outcomes for the communities that offer them.

The reasons are straightforward. All else being equal, a state that lards out subsidies must impose higher tax rates on everyone else in order to make up the difference. Higher taxes discourage economic activity, and the higher the taxes are, the more economic activity they discourage. So subsidies are a great way to depress net economic activity. 

Most subsidies do not seem to affect firms when they choose where to locate. Surveys suggest that other factors such as customer base, supply chains and livability seem to matter more. But even if a subsidy does entice a firm to relocate, that may not be a good thing.

A firm that can be lured by a subsidy is a firm that may be lured away by another state in a few years. Moreover, if the firm wouldn’t locate in your state without artificial enticements, it may not be suited for your state. 

The Amazon spectacle has been sad to watch. But to the extent that it has exposed a long-ignored dimension in American politics, it may be helpful.

{mossecondads}Ms. Ocasio-Cortez and I do not agree on the proper size and scope of government. But we can agree that whatever its size and scope, government ought not to discriminate in favor of large, politically organized companies. 

The social safety net, whatever its form, should catch people who fall on hard times, not multinational corporations with well-connected CEOs. When government policy is tilted in favor of the well-organized and the wealthy, it undermines the legitimacy of both democracy and capitalism.

It belies the notion that government’s purpose is to serve the general welfare. It also encourages the idea that business success is predicated on the value that a CEO can create for her political patrons rather than the value she can create for her customers and her shareholders.

Matthew D. Mitchell is a senior research fellow and director of the Equity Initiative at the Mercatus Center at George Mason University.