The Problem:

Big Tech corporations have collected billions of dollars in subsidies from state and local governments. Amazon alone has received more than $4 billion, most of which helped it build out its warehousing and distribution network.[1] Google and Facebook have both received hundreds of millions of public dollars to build data centers.[2] Apple recently received $850 million in public funds for a single research and development site in North Carolina.[3]

These subsidies are a waste of public funds: Research has shown they have no association with positive economic outcomes such as increased job creation or rising incomes.[4] Most of the time, in fact, they simply pay a corporation to do what it would have done anyway.[5]

Subsidies also help Big Tech corporations entrench their dominance vis-a-vis their smaller competitors. For example, smaller retailers don’t receive the same support for building out their distribution that Amazon does; Amazon then uses access to its distribution network as a way to leverage fees and data from smaller sellers.[6] Facebook and Google’s business models are dependent on amassing and storing massive amounts of data, the cost of which is defrayed by state subsidies that potential competitors don’t receive. These arrangements also often include nondisclosure agreements signed by public officials, so details about them are hidden from the public.[7]

The Policy:

States can simply deny subsidies to Big Tech corporations by eliminating their subsidy programs altogether or setting caps on the size of corporations allowed to receive them. They can also use their powers to limit the ability of local governments to employ subsidies by passing a ban on intrastate incentivizing of corporate relocations.

To eliminate concerns about being at a competitive disadvantage vis-a-vis other states, state governments can pass legislation to form an interstate compact against corporate tax giveaways, under which states would pledge not to use incentives to poach corporations from other compact states. States can also ban the use of nondisclosure agreements in economic development deals.

Model bills: HB0211, Illinois, 2021 (bans intrastate job poaching); HB0145, Illinois, 2021 (forms an interstate compact against corporate giveaways); S1196, New York, 2021-2022 (bans nondisclosures in economic development agreements)

The Pushback:

Economic development officials and state lawmakers often claim that they must engage in subsidization of Big Tech firms or they will miss out on job creation and investment. But, as noted above, corporate subsidies are not correlated with positive economic outcomes generally, and 75-90 percent of corporate relocations would have occurred even in the absence of subsidies.[8] For tech particularly, corporate leaders choose to locate in a few existing hubs, even when subsidies are available.[9] The highest-profile example of this is Amazon choosing to place its “HQ2” in the metro areas of Washington, D.C., and New York City, even when higher subsidies were available from nearby jurisdictions.

Notes:

[1] Amazon Tracker, Good Jobs First, accessed July 15, 2021.

[2] Subsidy Tracker, Good Jobs First, accessed July 15, 2021.

[3] Garofalo, Pat, “Apple Schools North Carolina,” Boondoggle, April 27, 2021, https://boondoggle.substack.com/p/apple-schools-north-carolina.

[4] See: Pat Garofalo, The Billionaire Boondoggle: How Our Politicians Let Corporations and Bigwigs Steal Our Money and Jobs, Thomas Dunne Books, March 2019; Greg Leroy, The Great American Jobs Scam: Corporate Tax Dodging and the Myth of Job Creation, Berrett-Koehler Publishers, July 2005; Richard Florida, “The Uselessness of Economic Development Incentives,” CityLab, December 7, 2012, https://www.bloomberg.com/news/articles/2012-12-07/the-uselessness-of-economic-development-incentives; and Cailin Slattery and Owen Zidar, “Evaluating State and Local Business Tax Incentives,” Journal of Economic Perspectives 34.2, Spring 2020, https://scholar.princeton.edu/zidar/publications/evaluating-state-and-local-business-tax-incentives, among many other works.

[5] Tim Bartik, “‘But For’ Percentages for Economic Development Incentives: What percentage estimates are plausible based on the research literature?,” W.E. Upjohn Institute for Employment Research, July 1, 2018, https://doi.org/10.17848/wp18-289.

[6] Daniel A. Hanley, “Eyes Everywhere: Amazon’s Surveillance Infrastructure and Revitalizing a Fair Marketplace,” Open Markets Institute, July 2021, https://static1.squarespace.com/AmazonSurveillance_Report_2021_Final.pdf.

[7] Pat Garofalo, “How Amazon, Google and Other Companies Exploit NDAs,” The New York Times, June 29, 2021, https://www.nytimes.com/2021/06/29/opinion/nda-amazon-google-facebook.html.

[8] Bartik.

[9] Pat Garofalo, “Rural America Gets Extra Hurt By Corporate Giveaways,” Boondoggle, April 17, 2020, https://boondoggle.substack.com/p/rural-america-gets-extra-hurt-by.