Amazon, Inc. is the largest retailer of goods in the world. It has a current market cap of $1.6 trillion dollars and annualized revenue of $280 billion. The company survived the Dot Com bubble collapse of the late 20th century, and has seen explosive growth since the Great Recession. Along with that growth in revenue and valuation, the company has expanded operations at home and abroad. Employment is up twentyfold, where 33,000 employees in 2010 are rivaled by the 650,000 that now call the retail giant their employer. These numbers only continue to climb, and the recent outbreak of COVID-19 has accelerated the company’s scale.
The retail giant is unlike most retailers in the country: while it does operate some brick-and-mortar stores, the company conducts virtually all of its sales online, and has various interests and holdings in a broad spectrum of industries. It sells groceries, develops video games, web hosting and services, retail, cloud computing, health care, entertainment, and sells virtually any product you could imagine. The bulk majority of Amazon’s staff work at fulfillment centers (FCs), which are distribution warehouses where the company hosts and sorts products for shipping. As the company has scaled up its operations and lowered the speed of delivery for products (i.e. next-day or same-day delivery), it has needed to expand the number of FCs across the United States in order to carry out its logistics-intensive business model.
Amazon continues to spread out its offices and fulfillment centers to also achieve another goal: by decentralizing its office holdings across the country, it can split its various departments into smaller teams. In doing so, the world’s most valuable company can overcome corporate bloat. That is to say, by splitting up its office space, Amazon can still hold power as a massive corporation that can reduce costs through scale, and it can simultaneously maintain a lean, nimble start-up culture amongst smaller teams, where innovation will not be stifled by an inflated central bureaucracy and middle-management getting involved in every decision.
The company’s FCs have created hundreds of thousands of jobs across the country, often placing fulfillment centers in empowerment zones and in low-income communities. Amazon is usually heralded as a “prosperity bomb” for localities hoping to draw investment to their cities and counties. Local politicians refer to large job creators in their neighborhoods as “prosperity bombs.” The phrase alludes to the new influx of wealth that large employers can bring to a community and the people who live there. When a fulfillment center opens in a low-income community, it brings thousands of jobs at once and creates spillover effects. The company pays a nationwide minimum wage of $15 to its entry-level FC employees, which is over double the federal minimum wage that states like Mississippi and Alabama adhere by. Workers with more money in their pockets spend more at nearby restaurants, dry cleaners, car dealerships, etc.
That is where Amazon’s influence truly comes from. It is a medium-sized political donor and it’s employee-operated Political Action Community (PAC) donates small amounts to members of both major American political parties. According to OpenSecrets, the Amazon employee PAC only has a budget of $1.3 million dollars as of this election year. But the company does not need to donate vast sums of money to impact legislation: by creating thousands of good-paying jobs in constituencies across the country, the multinational corporation exerts its influence on American public policy in a less heavy-handed way. It acquires tax abatements and subsidies by pitting cities, counties, and states against each other for the placement of FCs and engineering offices. Elected officials at all levels of government pay ever-increasing tax breaks to Amazon hoping to attract these good paying jobs to their constituencies, hoping their investment pays off and brings a “prosperity bomb” to their region. Amazon faces little regulations because elected officials want to claim credit for bringing the world’s largest corporation to their city. In doing so, elected officials beg the company to come set up shop in their community. They negotiate handsome tax abatement packages, so Amazon pays little to no tax on its developments, and politicians benefit from the increase in jobs.
Given the history of Amazon and its power now, one must ask: How did Amazon gain so much economic and political power so quickly, and how did they avoid opposition for so long? To understand how Amazon has avoided taxes and scrutiny, we must understand its role as an interest group in American politics. Amazon is a multinational conglomerate that receives tax incentives because of its ability to invest heavily in different constituencies across the country. Their success is not only due to their innovative business model and practices, but it is also because Amazon capitalizes on officials re-election incentive. No politician wants to draw the ire of Amazon when the company can bring thousands of jobs to their district, city, county, or state. Some politicians may criticize the company, but their legislative proposals to slow its growth usually go nowhere.
Albeit it is in every citizen’s interest for Amazon to pay more in tax revenue, it continues to receive tax abatements and subsidies because it has leverage over officials. Those officials are paid off not with financial donations to campaign funds. Instead, they receive payoffs from Amazon by incentivizing the company to invest in their community, which the elected official can then claim credit for. The people’s best interests face little chance of stopping Amazon, because Amazon has the most important currency of all for elected officials: jobs and votes. The voice of powerful businesses can outdo the voice of a popular majority who cry out for Amazon to pay their fair share of taxes.
Overcoming a Powerful Business: How the People of New York Won
When the company announced a competition in search of a host city for its second headquarters (HQ2), hundreds of cities across North America drafted bids to entice Amazon to invest in their community. Mayors, County Supervisors, and Governors quickly used various financial tools and offered generous tax incentive packages to attract Amazon. Ultimately, the company decided to split their second headquarters between two cities: Long Island City, which is a community within Queens, New York and Arlington, Virginia. In New York, New York City Mayor Bill de Blasio and Governor Andrew Cuomo mustered as many resources as possible to offer Amazon $3 billion in tax deductions, as long as Amazon upheld their promise to bring 25,000 jobs to Long Island City.
In spite of the best efforts of most officials in the State Government in Albany and Mayor de Blasio’s office, grassroots progressive organizations in Queens quickly arose challenging Amazon’s investment. Long Island City has been rapidly gentrifying over the past five years. Google, Facebook, and other big tech companies have begun to invest in the community, and residents have felt the squeeze of increased rents and job displacement as the property market heats up. While black and brown members of Long Island City have found it difficult to continue to stay in their homes, the $3 billion price tag for Amazon’s investment quickly became a rallying cry against the company in Queens. Progressive representative Alexandria Ocasio-Cortez launched public campaigns against Amazon’s 2nd headquarters, saying that the price tag was too high when Amazon would not actually employ members of the community. Instead, the highly-technical job opportunities the company created would displace local residents and exacerbate the already growing cost-of-living crisis. The working class citizens of Long Island City simply didn’t have the correct skill set for Amazon’s corporate office. It was apparent that the new jobs would thus bring in younger tech employees, and slowly drive out long-term residents.
Amazon is similar to many other big tech firms and large corporations in America. They work diligently to reduce their tax burden and invest in districts where they will not have to cede as much of their revenue to the IRS and State Controller’s Offices. But as the world’s largest company, Amazon has far more power than most employers. When a head-tax of $275 per year on employees of large corporations was proposed in Seattle to tackle the city’s homelessness crisis, Amazon threatened to halt construction of all offices in the city, and even threatened to withdraw some of its offices from Seattle. The tax proposal quickly died in the city, to the detriment of progressives who had hoped to use the new tax revenue to combat homelessness and develop more affordable housing.
Regular residents will never understand the complexities of tax abatements for corporations, which they most likely will not feel the direct cost of. When a tax abatement is offered on a new development, most constituents do not feel its effects immediately. Instead of the local government paying money out to the company receiving the tax breaks, they simply do not charge them taxes for a predetermined period of time, or they tax the business at a lower rate, offering exemptions on certain municipal charges and usage fees. The benefits of abatement are narrow, as Amazon receives all of the stimulus, while the costs are distributed amongst the population. When the community expands, it will take a while for the infrastructure and local government expenditures to match the new demand. Most residents won’t contribute these fiscal pressures to the new office or fulfillment center that brought jobs to the community. The public overestimates the benefits of job creation, and undercounts the negative externalities and lost revenue. Without the increased tax revenue to match the increased demand and population, city services will suffer.
For the elected officials that negotiated the deal to bring Amazon to the community, the costs themselves are the benefits. In one study on how re-election seeking officials make policy decisions, Canes-Wrone et al. found that politicians may implement a policy that they think is inefficient economically if (1) they think the voters perceive it is good public policy and (2) if the elected official doesn’t think the voters will understand that the less-popular but overall better policy would actually help them by the time of the election.
Incentives to Pander by Jensen and Malesky is a book focused on how local officials and stakeholders offer subsidies to corporations in their districts. In polls conducted across the country, “American voters consistently believe that taxes are among the most important factors in attracting investment and improving economic performance.” Thus, so long as the American population believes that tax reductions help bring business and jobs, politicians will continue to offer corporations like Amazon tax abatements.
The problem is that the research on the efficacy of tax abatements is dubious. Most working economic papers today offer contradictory opinions on whether or not tax abatements, subsidies, empowerment zones, and state development corporations actually support the development of new jobs and economic growth. The only guaranteed evaluation of tax abatements and subsidies shows that offering these sorts of economic packages usually increases property values in a region. That is because localities and districts can end up trapped in tax abatement “races-to-the-bottom,” where communities consistently compete and continue to drive down their tax revenues by offering bigger incentives and breaks to companies. In doing so, they create jobs in their communities, but the lost tax revenue harms other portions of society. Housing supply crunches, and thus property values (and rents) go up. There are also other variables at play: it is likely that corporations choose where to develop based on other factors unrelated to tax abatements, like quality of schools and talent-pools.
The Case of New York
As income inequality increases in the United States, many see Amazon and CEO Jeff Bezos as the hallmark example of unchecked capitalism. The company pays little to no tax on the state and national level, while government austerity measures have hit communities across the country. The constant threat of inaccessibility to affordable health care, housing, and job-opportunities are juxtaposed to Bezos owning nearly $200 billion in net assets. Progressive politicians have raised their voices against Amazon’s tax aversion and their anti-union employment practices, and these voices came to the forefront in the effort to stop Amazon’s HQ2 expansion into Long Island City.
New York is not like normal constituencies. The city has a strong tradition of union strength in politics. The city has been gentrifying and becoming unaffordable for poorer tenants and renters. Faced with fears of displacement and rent hikes, lower-income residents of Long Island City were not excited to see Amazon come to the community. In their eyes, Amazon’s decision would be the greatest gentrifying force the city had seen, and its infamous anti-union policies would harm the city’s blue collar workers.
It is not difficult to understand their fears. The company does not employ many blue-collar workers in their corporate offices. Amazon’s engineering offices are full of software engineers, data analysts, and web developers. In spite of promises from Amazon to the community to build school-to-job pipelines from local high schools and community colleges in Queens, the company would still be creating 25,000 jobs in a community that lacked the STEM degrees and training to fill those roles. Amazon may have been investing in the community, but it was not investing in the people.
And that’s why Amazon failed in New York. The costs of building were intense on local residents who believed that the Seattle-based tech company would rapidly change their neighborhoods. The policy costs were acute on these local residents who feared urban gentrification, and they had the ability to prevent Amazon from moving to Queens through use of oversight community-planning boards run by New York State Senators and progressive leaders use of social media, where they called out the Amazon deal and its supporters in both the mayor and governor’s offices. New York politicians that had signed an open-letter begging Amazon to open HQ2 in NY were backtracking. As the deal became unpopular in Long Island City, City Councilmembers and State Senators who needed to approve the deal walked back their support for Amazon, instead becoming hostile towards HQ2.
The company listed a variety of reasons for why it wanted to place its second headquarters in New York. Facing questions from the New York City Council’s Committee on Finance, Amazon VP of Public Policy Brian Huseman noted that the City had a strong talent pool, a rising real estate market, local institutions and universities to support its growth, and an urban environment that attracted human capital across the world. The Committee on Finance, pushing on these points, came to the conclusion that Amazon would have chosen New York for those reasons alone. Thus, there should have been no need for the $3 billion in tax breaks offered by the Empire State Development Corporation (ESDC), Long Island City’s Empowerment Zone, and Governor Cuomo/ Mayor de Blasio’s offices.
With public opinion quickly turning on Amazon, and the key appointment of anti-Amazon representatives like State Senator Michael Gianaris to the State Senate’s Planning Oversight Commission (which needed to approve any Amazon building proposal), Amazon decided that the political fight to build in New York was not worth it. The negative media attention had been too much for Amazon, and Huseman later told reporters that the company was seeking a site for its second headquarters that was more friendly to the organization. Progressive leaders successfully stopped Amazon’s incursion into Long Island City through the media and by asking labor groups to step up. Instead of pushing the fight against these pressures, Amazon gave up. It is entirely possible that Amazon could have persisted through the political challenges facing it, as Mayor de Blasio and Governor Cuomo still pushed for the company not to leave. But in the end, the company decided to give up on New York and devote its attention and resources elsewhere. And why wouldn’t it? Other cities still offered Amazon tax credits and subsidies. New York was the best choice for the company, but it was far from the only one. The company didn’t need New York. Other cities across the country have and continue to offer Amazon strong tax incentives.
Amazon’s expansion in Long Island City would’ve sped up gentrification in the city. But gentrification is still happening: new tech companies are pouring into the community, and poor residents continue to see their rents increase. Amazon continues to benefit from tax breaks from districts across America, just not so much from New York City.