Amazon gives up its 2nd headquarters in Long Island, New York Amazon, the world’s largest online retailer, decided to pull out of its deal to set up a second headquarters (HQ2) in Long Island, Queens New York due to rising protests and negative media attention. On February 14, 2019, Amazon announced “after much thought and deliberation, we’ve decided not to move forward with our plans to build a headquarters for Amazon in Long Island City…For Amazon, the commitment to build a new headquarters requires positive, collaborative relationships with state and local elected officials who will be supportive over the long-term.”1 Amazon said it has no plans to re-open another headquarters elsewhere at this time, but would continue its plans in Virginia. The deal was expected to provide $30 billion in tax revenue over the long term by creating 25,000 new jobs paying an average of $150,000 per person’ while the state and city governments provided tax incentives of $3 billion to Amazon to help subsidize the cost of its building, salaries, a helipad and other expenses.2 New York Governor Andrew Cuomo, a supporter of the deal, was deeply disappointed that Amazon threw away an opportunity and wasn’t “tough enough” after receiving extensive criticism. Cuomo said, “we competed in and won the most hotly contested national economic development competition in the United States. However, a small group (of) politicians put their own narrow political interests above their community – which poll after poll showed overwhelmingly supported bringing Amazon to Long Island City….”3 Cuomo argued that the long-term economic development for Long Island City outweighed any initial government investment. “It costs us nothing,” he said – since, he contends, we are only forgoing taxes we wouldn’t get at all if Amazon didn’t come here in the first place. He says we will make back $9 for every $1 in tax forgone, give or take.”4 Opponents said it was a zero sum game, that jobs are just getting moved from state to state and that there are no real winners or losers. Protestors to the deal were glad that Amazon backed out and now the $3 billion in taxpayer dollars promised to Amazon can now go to schools, roads, firefighters and other community needs. Since Amazon is valued at over $700 billion dollars, many people argued the company doesn’t require help from taxpayers.5 For example, in 2017, Amazon earned over $178 billion in revenues, earning founder and CEO Jeff Bezos the status of the wealthiest man in the world. 6 Many opponents were against the deal for other reasons. There was some concern that the influx of 25,000 people to Long Island City was going to cause a rise in rents, housing costs and put extra demands on the transit system. Supporters argued that the $30 billion in additional revenue could have helped fix the ailing transit system, repair roads and other infrastructure needs. After all, the 25,000 employees would be paying income tax, spending money and 1 CBC News. Amazon Pull Out of HQ2 Deal with New York City. February 14, 2019. https://newyork.cbslocal.com/2019/02/14/amazon-new-york-city-deal-dead-amazon-hq2/ Barro, Josh. Here’s Why New York is Resorting to Paying Amazon $3 Billion for What Google Will Do for Free. November 13, 2018. http://nymag.com/intelligencer/2018/11/why-new-york-is-paying-amazonusd3-billion.html 3 CBC News. Amazon Pull Out of HQ2 Deal with New York City. February 14, 2019. https://newyork.cbslocal.com/2019/02/14/amazon-new-york-city-deal-dead-amazon-hq2/ 4 Barro, Josh. Here’s Why New York is Resorting to Paying Amazon $3 Billion for What Google Will Do for Free. November 13, 2018. http://nymag.com/intelligencer/2018/11/why-new-york-is-paying-amazonusd3-billion.html 5 Pagano, Alyssa and Kovach, Steve. Amazon will pay $0 in federal taxes this year – here’s how the $793 billion company gets away with it. February 14, 2019. https://www.sfgate.com/technology/businessinsider/article/How-Amazon-gets-away-with-not-paying-taxes-13617899.php 6 DePillis, Lydia. Helipads and everything else Amazon is getting out of its deals with New York and Virginia. CNN Business. November 14, 2018. https://www.cnn.com/2018/11/13/business/amazon-hq2subsidies/index.html 2 assisting the local economy. Coffee shops, restaurants, gasoline stations, and other local businesses could benefit from potential improved sales from the increased consumer traffic, demand, and economic development in the area. There was also hope that this economic influx could increase further jobs and reduce the poverty level in the area. Amazon would have been moving near Queensbridge Housing, the country’s largest public housing project, where the median annual household income is $15,843 and nearly 60 percent of its households rely on food stamps.7 “Everyone in New York City is a loser now, because we lost these good-paying jobs and unfortunately our reputation as someone who is welcoming of business as well,” Republican Assemblywoman Nicole Malliotakis said.8 Other supporters also view this as a loss of a “tech hub” for New York. In the past, when one technology company settles in a region, others like to follow. This was seen in Seattle after Amazon and Microsoft created a large tech hub that made Seattle, Washington America’s second largest technology centre after Silicon Valley in California.9 Regardless of the potential economic benefits, many opponents argue that some corporations are getting too powerful and should not have governments competing in bidding wars for jobs. Clearly, small businesses and start-up companies do not receive these kinds of benefits. Other critics argue it is also a question of how special deals may undermine the political process. For example, the negotiations between Amazon and New York State were kept secret and not open to the public until finalized. There was no stakeholder engagement, community involvement or transparency during the proceedings. Most analysts agree Amazon already has significant market dominance. Amazon is a global online retailer, a content producer, book supplier and cloud computing service. Amazon has also become an essential channel for millions of companies to reach their sellers. This gives Amazon a great deal of power. For example, Amazon competes on a cloud-basis with Microsoft, Google and IBM, and on a retail basis with Walmart and everyone else. “Amazon is the largest Internet company by revenue in the world and the second largest employer in the United States. In 2015, Amazon surpassed Walmart as the most valuable retailer in the United States by market capitalization. In 2017, Amazon acquired Whole Foods Market for $13.4 billion, which vastly increased Amazon's presence as a brick-and-mortar retailer. The acquisition was interpreted by some as a direct attempt to challenge Walmart's traditional retail stores.”10 When there is a concentration of economic power, this translates into political power which poses a threat to the democratic process and the free market system. In 2018, for example, Amazon paid zero $0 in federal corporate income taxes due to some effective tax planning Kilgannon, Corey. Amazon’s New Neighbor: The Nation’s Largest Housing Project. New York Times. November 12, 2018. https://www.nytimes.com/2018/11/12/nyregion/amazon-queens-queensbridgehouses.html 8 CBC News. Amazon Pull Out of HQ2 Deal with New York City. February 14, 2019. https://newyork.cbslocal.com/2019/02/14/amazon-new-york-city-deal-dead-amazon-hq2/ 9 Barro, Josh. Here’s Why New York is Resorting to Paying Amazon $3 Billion for What Google Will Do for Free. November 13, 2018. http://nymag.com/intelligencer/2018/11/why-new-york-is-paying-amazonusd3-billion.html 10 https://en.wikipedia.org/wiki/Amazon_(company) 7 strategies and tax loopholes that the government has failed to change, including some unspecified tax credits and a tax break for executive stock options.11 Amazon’s third party auditors have said that Amazon does pay taxes but has used loss carryforwards from earlier business years which is something available to all businesses and meets current tax laws and regulations. Government tax revenue impacts the amount of funding for schools, libraries, road repairs, police officers, firefighters and other community services. And with New York State’s debt of $64 billion, the 2nd highest level in the country, the State continues to be scrutinized for how it spends its tax dollars.12 For now, Amazon has ended the public scrutiny over its Long Island HQ2 deal, but may look for more tax subsidies in the future. Amazon has become an expert at negotiating tax incentives with state and local governments. “From 2005 to 2014, it’s gotten over $600 million in tax breaks to build warehouses in certain states. It got another $147 million in tax breaks from building data centres around the country.”13 Tax incentives are nothing new. While Canada was also willing to offer Amazon tax subsidies, Amazon did not consider Canada for its second headquarters. Question 1 Discuss whether or not it is ethical” for Amazon to pull out of the deal to set up a second headquarter in New York. Apply both rule ethics and utilitarianism in answering the question. Question 2 Explain why the New York State Government should play the role of ‘guardian of business’ and provide tax incentives to Amazon. A) Explain why the New York State Government should NOT play the role of ‘guardian of business’ and NOT provide tax incentives to Amazon. 11 Blumberg, Antonia. Amazon to Pay $0 in Federal Taxes in 2019. Huffington Post. https://www.huffingtonpost.ca/entry/amazon-federal-taxes-2019_us_5c660227e4b01757c369c5b3 Blain, Glenn. New York's debt is second highest in nation and the state's borrowing habits must change, controller cautions. New York Daily News. December 14, 2017. https://www.nydailynews.com/newyork/n-y-second-highest-debt-u-s-dinapoli-article-1.3698600 13 Pagano, Alyssa and Kovach, Steve. Amazon will pay $0 in federal taxes this year – here’s how the $793 billion company gets away with it. February 14, 2019. https://www.sfgate.com/technology/businessinsider/article/How-Amazon-gets-away-with-not-paying-taxes-13617899.php 12 Question 3 If Amazon had decided to set up it’s second headquarters in Canada, what are the potential benefits and risks to Canada? Question 4 What stage of the industry life cycle is the on-line retailing industry in? Question 5 Is Amazon being socially responsible or not by pulling out of the New York deal?
