Corporate Welfare Funnels Money from Taxpayers to Elite
Everything I Know About Incentives I Learned in New York City
Thanks to Greg LeRoy of Good Jobs First for circulating the below article, which originally appeared in State Tax Notes. You're in for some appalling facts about corporate welfare in New York.
In 1987, New York City gave NBC approximately $98 million to keep the television giant from moving across the Hudson River to Jersey City, N.J. The deal included $73 million in property tax savings and $25 million in sales tax exemptions. In return, NBC agreed to renew its lease at Rockefeller Center and invest an additional $1.5 billion to modernize its studios. But the city was going to help with the modernization as well, agreeing to issue $800 million in double-tax-exempt bonds (that is, exempt from state and local income taxes) to finance the project. It was by far the largest bond package in New York City's history.
The NBC deal exemplifies all that is wrong with targeted tax incentives. Many believe that NBC had no intention of ever moving to New Jersey. But New York's political leaders were desperate to keep the prestigious television network and its thousands of employees; they were not up to taking any chances. Of course, NBC fired about 700 workers soon after the deal was announced. Overall, it was a bad deal for New York -- but one the bad effects of which were compounded in 1996 when the city gave NBC an additional $7 million in sales tax exemptions.
You may wonder why this article is beginning with a narration of events that took place 13 years ago. The 1987 NBC deal was the start of a massive effort on the part of New York City to use tax policy as a means of retaining or luring corporations. Since that time, the Big Apple has granted corporations more than $3 billion in tax breaks and other incentives. Some of the incentives were aimed at keeping venerable organizations, such as the New York Stock Exchange, from moving to New Jersey. Some others were aimed at getting new Internet start-ups, such as TheGlobe.com, to establish their headquarters in the city. And many (such as the second NBC deal mentioned above) were given for no discernible reason.
Good Jobs New York, a joint project of the Fiscal Policy Institute and Good Jobs First, has updated its database of the biggest economic development deals in New York City. I encourage anyone interested in the subject of tax incentives to review the Good Jobs New York database. It can be found at http://www.ctj.org/itep/gjny/deals.htm.
The size and pervasiveness of the problem of tax incentives in the nation's largest city is shocking even to me.
In the past decade or so, over $3 billion has essentially been given to some 66 corporations, including some of the largest and wealthiest companies in America. Recipients have been among the most powerful financial institutions and organizations. They include the New York Stock Exchange, Chase Manhattan Bank, NASDAQ/Amex, Prudential Securities, Citicorp, Bear Stearns & Co., Credit Suisse First Boston, Morgan Stanley, Kidder Peabody, Travelers/Smith Barney, PaineWebber, and Dillon, Read & Co. These companies have combined assets of hundreds of billions of dollars.
The recipients have also included some of the nation's most powerful media companies, including Bertelsmann AG, NBC, CBS, McGraw- Hill/Standard & Poor's Corp., the New York Times (which has conveniently editorialized in favor of such incentives), Time Warner Inc./Time Inc., Capital Cities/ABC Inc., Bloomberg, Conde Nast, Ziff- Davis Publishing Co., Reuters, and News America/New York Post. The companies that essentially control most of the media in the United States have received taxpayer subsidies from New York City.
The insurance industry (Empire Insurance Group, Equitable Companies/Equitable Life Assurance Society, Guardian Life Insurance Co.) and high-technology sector (PSINet, StarMedia, TheGlobe.com, DoubleClick) were also well-represented in the recipient pool.
In reviewing the Good Jobs New York Web site, I started to wonder if anyone has not received tax breaks from New York City. But of course, lots of people and companies have not received breaks. First, there are the millions of folks who live in Manhattan, Brooklyn, the Bronx, Staten Island, and Queens. That multitude of police officers, waiters, lawyers, cab drivers, and teachers receives no tax breaks. Neither Mayor Rudolph Guiliani (R-L) nor his Democratic predecessors would give the average person a dime to stay in the city.
And while the largest and most powerful corporations received substantial amounts of government benefits, literally thousands of other New York City businesses were not so lucky. Those small and mid-sized companies employ millions of New Yorkers, pay their taxes, and don't threaten to move to Uruguay. (That nation was not chosen casually; StarMedia, an Internet service provider, apparently warned that it would relocate to Uruguay if tax incentives were not forthcoming.)
In reading the Good Jobs New York Web site, one gets the feeling that many of the tax breaks given to the big corporations were (not surprisingly) unnecessary. Most of the companies probably were not leaving whether they received the money or not. One also gets the feeling that many corporations failed to live up to the promises they made in return for the money. Some companies promised to add employees. Other companies promised to invest in plant and equipment. But the promised economic activity often did not materialize.
The $3 billion that New York City spent over the past decade could have gone toward improving public safety, transportation, or schools. It could have been used to provide tax relief for individuals or small business. Instead, it was used to buy something that the city probably could have got for free.
More important, the recipients of those tax incentives use city services as much as the people and businesses not receiving the incentives. Forget for a moment that the recipients are really, really wealthy, and that they can afford to pay. There is no reason why they should be relieved from paying their fair share of the costs of New York City government.
Political leaders being politicians, it is easy to understand the cause of this culture of incentives. New York's Democratic and Republican mayors fear losing jobs and well-known companies. They do not want to claim the title of The One Who Lost the New York Stock Exchange. (Although the city seemed somehow to survive losing the National Football League's Giants and Jets -- which it did, despite the fact that they've kept the city's name while playing within sight of the Manhattan skyline.) In any event, the fear of losing jobs and companies is very strong. All a company need do is hint that it is moving and the city government springs to action. The companies, of course, are well-aware of the fear and take full advantage of it. There is a whole industry of consultants willing to help companies with money find tax incentives.
For once, it would be refreshing for a big-city mayor (or a governor) to stand up and say that "my government will not be held hostage." The mayor could refuse to give in and take the chances. Nothing else -- especially the preaching of commentators on the evils of incentives -- seems to work. The mayor could state unequivocally his or her refusal to foist the costs of paying for government onto the backs of ordinary citizens. Some companies, of course, will leave. But standing up to corporate blackmail, rather than acquiescing in the usual manner, might actually pay political dividends. The public may actually appreciate a leader who shouts, "If you want to move to New Jersey so badly, just go."
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