Tag Archives: tax abatements

The “But For” Test

When I was in City Hall, in the late 1970s, the use of tax abatements to lure employers to Indianapolis, or to blighted areas, was relatively new. Back then, applicants for those abatements were expected to demonstrate that “but for” the tax break, they wouldn’t make the move–that the incentive made the difference between an economically viable move and one that otherwise wouldn’t make economic sense.

I recall several quibbles about whether this or that business had actually met the “but for” test.

Over the years, of course, we’ve heard less and less about cities justifying the various incentives being doled out to entice employers, with the result that the whole country sometimes seems engaged in a zero-sum game (after all, when factory A moves from state B to state C, jobs may come to state C, but they’re lost to state B. Total economic activity rarely increases.) Incentives have come to look more and more like bribes; larger enterprises looking to move or expand pit “bidders” against each other to extract the largest concessions.

“Who will pay me the most to come?”

Those of us who have looked askance at the evolution of this competition have long believed that these enterprises would move to locations that made business sense without the incentives/bribes. And now we have evidence.

Remember when AOC and many others blocked the three billion dollars in subsidies that New York offered Amazon? Amazon is moving to New York anyway. Without the subsidies.

“The giant online retailer said it has signed a new lease for 335,000 square feet on the city’s west side in the new Hudson Yards neighborhood, where it will have more than 1,500 employees,” The Wall Street Journal reported. “Amazon is taking the space without any of the special tax credits and other inducements the company had been offered to build a new headquarters in the Queens neighborhood of Long Island City, the company said.”

“The new lease represents Amazon’s largest expansion in New York since it stunned the city by abandoning those earlier plans. Amazon pulled back after facing a backlash from some politicians and activists over the roughly $3 billion in financial incentives the city and state had extended to woo the company and the 25,000 new jobs it had pledged to create,” The Journal explained.

Clearly, a New York location made business sense for the company. That being the case, the massive subsidies it extracted during the competitive process were gravy–and taxpayers were supplying that gravy.

The politicians and activists who had blocked the original offer had argued that it was unnecessary. They were clearly correct. There is no way that Amazon could have passed a “but for” test.

The money being spent on these high-profile efforts could be used instead to grow local businesses–why not, for example, create a fund that would finance promising mom-and-pop startups that can’t get conventional financing? Or use that money to make local retail districts more attractive and accessible?

Bribing employers to relocate is not “economic development”–and as Amazon has just demonstrated, it’s usually not necessary.