Recently, the CEO and majority owner of Amazon announced that he was going to open a second headquarters. The location was to be determined, Bezos said, by the extent of reduction in local or state taxes offered as an inducement.
It was a bit of a surprise that Bezos would make tax breaks such a prominent factor in his location selection. Surely there are other features of far greater importance. To begin with, in creating two headquarters, is he dividing functions? Will there be a president at each location? Maybe a couple of chaps will be on the phone all day reaching agreements on matters that a single president would make by himself.
Maybe Anchorage is a good headquarters spot. Anchorage has air links all over the world and Alaska has no income tax. Afraid not — Anchorage is far from manufacturing centers. Few places can accommodate the transportation needs of mighty Amazon.
In the era of instant electronic communication, a headquarters can be located in Pocatello, Idaho, or Kailua, Oahu. Hmmm, is time zone communication going to be a problem? Maybe Joplin, Missouri, or some other place in the center of the United States has advantages. Given labor costs and an inert labor movement, McComb, Mississippi, is better.
After due reflection, it seems unlikely that tax breaks could decide location. Still, it was a good idea to announce tax breaks as the deciding factor. Craven elected officials all over the United States will promise Amazon a tax-free environment whatever its importance in Bezos' decision.
Though common throughout the country, tax breaks for locational decisions is terrible public policy. Large new businesses create expanded public financial burdens on both community and state. Private growth carries public service demand with it. Alaska's communities should be prohibited from giving special tax breaks because they are competing for reduced quality of public service.
For economic experts advocating business diversification as a solution to our current budget crisis, this is the opening irony. Adding more business, with a huge public fiscal deficit already in place, brings increased demand for public services, fewer services to go round and a bigger deficit. That's why Alaskans must stop pretending they can do just fine without a standard tax regime. We are not exceptions from standard economics. We need an income tax, increases on gas, alcohol, etc., as other states do to finance public services.
There is at least one other reason why special tax breaks are bad public policy. They corrupt competitive capitalism. You give this guy a tax break, how about others in the same business? You undermine those who have played the game right, incidentally offering temptations to private skulduggery.
This is especially so when the beneficiary of extra public largesse is of Amazonian size. Amazon is already in an awesome, powerful, competitive position and growing fast, threatening the existence of all local merchants, big and small, everywhere, including Anchorage. Amazon is passing Walmart as you read this article. It is hard to see where this expansion will end.
Free enterprise thrives on competition. Ever since the Sherman Antitrust Act was passed in 1890, American public policy has recognized the damage done by excessive competitive advantage, though the Justice Department's Antitrust Division seems to be snoozing these days. By the sheer size of its purchases, Amazon is surely squeezing the lowest price out of manufacturers, knocking out smaller competing manufacturers too and forcing painful reductions in salaries and hourly rates. Money doesn't trickle down, it flows to the top.
The federal government, while opposing monopoly, has long supported a system of monopoly grants through patent and copyright. In the legislative halls, those who favor expansion of patent and copyright have long outgunned the few who worried about the effect of excessive exclusivity. A re-examination of patent law will be required in any American economic makeover.
As for reducing taxes for the rich — are you crazy? To better understand the society we are creating, the states should allow titles. Article I, Section 9 of the U.S. Constitution prohibits only Congress from bestowing titles. So for a modest state entry fee to check qualifications, titles can be bestowed on dukes making over $60 billion, earls over $10 billion, viscounts over $1 billion, and barons from $100 million up. Since the administration is proposing to abolish the inheritance tax (now applicable to estates over $10 million), look to a rapid increase in the numbers of earls through barons over the next century with compensating jobs for mansion maintenance.
John Havelock is a former Alaska attorney general, White House Fellow and professor of justice at the University of Alaska Anchorage.
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