Welcome to brain Stuff from How Stuff Works. Hey, brain Stuff, I'm Lauren Vogelbaum. And In November, Amazon announced the winners of its year long bachelor style search for the location of its second headquarters, known as h Q. Two city and state governments were tripping over themselves to lure Amazon and its mega billionaire CEO, Jeff Bezos with sweetheart development deals.
In the end, it was Arlington, Virginia, and New York City that split the grand prize, a new Amazon office complex and twenty five thousand promised jobs going to each city. As part of the deal with New York alone, Amazon will receive an estimated two point eight billion dollars in
tax breaks and other business incentives. That's the equivalent of New York taxpayers paying Amazon a hundred and twelve thousand dollars for each of the twenty five thousand jobs that the tech giant has promised to create at its Long Island City headquarters. New York offered twice as much in incentives as Virginia did. The logic of offering up such huge incentives two companies like Amazon is that it's a
long term investment in the city's economic future. According to Governor Andrew Cuomo of New York the state will collect twenty seven point five billion dollars in new tax revenue over the next twenty five years thanks to the Amazon deal. A. Cuomo's calculations assume that Amazon will directly create forty jobs in New York, though not the promised, and that local and state businesses will hire an additional sixty seven thousand workers to service Amazon and its employees, known as the
job creation ripple effect. But plenty of commentators questioned the rosy figures pitched by politicians and are alarmed at the growing trend of huge corporations pitting state versus state to subsidize their expansions or relocations. The question is whether the very public and well publicized Amazon h Q two auction will signal a shift in the ways states and cities think about the economic benefits of such sweetheart development deals, or if it will simply embolden the next wealthy corporation
to demand even more more. Let's talk about the rise of this very public type of deal. We spoke with Greg Leroy, the director of Good Jobs First, a nonprofit, nonpartisan watchdog group that's been tracking corporate subsidies for twenty years. He says that cities and states have been wooing big companies with tax breaks for eighty years, but those deals typically went down behind closed doors and were relatively modest.
But the past few decades have seen an exponential increase in what Leroy calls mega deals, defined as incentive packages totaling more than fifty million dollars. According to research conducted by Good Jobs First, there have been three hundred and ninety three such mega deals since the mid nineteen eighties, with the frequency and dollar value of the deal's doubling
every year. Starting in two thousand and eight, The biggest single deal was awarded to the aerospace giant Boeing, which threatened to leave Washington State and was offered eight point seven billion dollars in taxpayer incentives inten to stay. An opposing politician in Seattle called Boeing's tactics economic terrorism. Even before the HQ two auction, Amazon had received one hundred and forties six incentive packages, including eight mega deals totaling
more than one point five billion dollars. The new packs with New York, Virginia, and Tennessee because Nashville is getting a new operations center as well, are set to increase Amazon's taxpayer fueled benefits by two hundred percent if or when they're paid out. Leori said Amazon is a very savvy company. It's scientific in its approach to getting more and more tax breaks. Amazon even created a dedicated tax
break department about six years ago. Amazon and other large corporations have been so successful in winning tax concessions from states and cities because politicians are eager to be seen as job creators. With real wages stagnant for decades and the steady disappearance of traditional middle class jobs and manufacturing, governors and mayors are scrambling for a big win. This fuels the competition for high profile new factories, headquarters, and
operations centers. It also fuels the economically feudal practice of job piracy, when states steal jobs from each other by luring away companies with piles of cash. Leroy has been fighting against corporate subsidies for decades and watching his incentive packages grow more and more excessive, but he wonders if the Amazon HQ two auction won't be the breaking point that he and other economic activists have been waiting for. He said, if there's ever been a moment when America
seems ready to rethink this whole crazy system. It's now Amazon HQ two was a very unusual public auction. Now that people understand what a rip off it is for taxpayers, there's a big appetite to fix the system. For example, notice that Amazon didn't end up choosing the biggest deals in total dollar value. Maryland, for example, dangled an eight point five billion dollar carrot in front of Amazon's nose, and New Jersey offered a package totaling seven billion dollars,
but Amazon passed them both up. Leroy explains that quote incentives almost never determine where a come the expands or relocates. They're too small. And while two point eight billion dollars is a huge number to New York taxpayers, tax incentives represent a tiny fraction, less than two percent, says Leroy, of the cost structure of a company like Amazon. Over the long term, Amazon and other large global corporations are
going to make decisions based on local infrastructure. Good airports are critical, the available talent pool, and the broader business environment of the region. So all the money thrown at corporations in the form of free tax perks could be better spent building up the local infrastructure and investing in education and job training. Unfortunately, infrastructure and education are far less politically sexy than winning the economic development dating game.
Today's episode was written by Dave Ruse and produced by Tyler Klang. For more on this and lots of other economic topics, visit our home planet, how stuff Works dot com