An Amazon worker in Phoenix, Arizona, wheels a dolly with boxes. Ross D. Franklin/AP
Some cities vying for HQ2 offer a way for companies like Amazon to automatically recoup a percentage of employees' salaries from...the employees.
There's a very real chance that when Amazon.com, Inc. starts hiring employees for its second headquarters, or HQ2, those employees' state personal income taxes won't all go to the state treasury. Billions of dollars in taxes may instead be diverted to the company, of which CEO Jeff Bezos owns 17 percent.
There are 18 states that offer this tax-diversion shell game to companies: If Amazon chooses to locate HQ2 in one of the nine finalist cities in these states, the employees will never be notified of their participation. Their pay stubs won't show where their tax deductions have actually gone. They'll never be asked if they consent or wish to opt out. Nor will the state's school boards, universities or transportation agencies have any say: Their resources will be greatly eroded, yet they'll still be expected to deliver a highly skilled workforce on time.
It's a glaring example of how extreme and hypocritical corporate welfare has become in reinforcing inequality. Amazon is headed by the world's richest man, but pays a median wage of just $28,446. Yet it may get such huge amounts of these personal income tax diversions that it will enjoy a negative income tax rate for many years in the state that "wins" the deal.
Of course, because of the traditional "economic development incentives" state and cities give out, Amazon will likely pay few if any of its corporate property taxes or sales taxes, either. Many states automatically exempt a project this size from sales taxes on building materials, machinery, and equipment. If they don't grant that automatically, Amazon will no doubt demand it. At the local level, politicians will be under terrific pressure to abate property taxes to mirror the state's generosity with corporate income tax credits that will reduce or eliminate its income tax bill for many years. The personal income tax diversions described here are on top of those.
We at Good Jobs First revealed this insidious giveaway in 2012 when we named 2,700 companies in 16 states that had been awarded big chunks of their employees' state payroll taxes. In "Paying Taxes to the Boss," we explained three different ways the money can flow, with the net effect always the same.
Amazon did not impose non-disclosure agreements on the first-round proposals for HQ2, yet we still know far too little about all but two of the tax-break offers made by Amazon's 20 finalist locations. But even with such poor disclosure about the specifics of each package, it's already evident that HQ2 employees could effectively pay lots of their income taxes to Bezos and other Amazon shareholders.
For example, Maryland has offered the biggest known HQ2 subsidy package, totaling $8.5 billion, for locating in Montgomery County. Most of it—$4.9 billion—would be payments to Amazon of 5.75 percent of every dollar paid in salaries. That's the state's top personal income tax rate.
If Amazon chooses Chicago, a reported $1.32 billion of Chicago's offer would derive from state personal income taxes. Never mind that the revenue is desperately needed by the most financially distressed state in the nation. It's surprising that the Prairie State would gamble on a retail headquarters deal: It has given Sears two HQ packages totaling $517 million, and those haven't stopped that chain's death spiral.
If Columbus is the choice, Amazon could get two kinds of personal income tax diversions: An Ohio program could entitle Amazon to three-fourths of its HQ2 employees' payroll taxes for 15 years, at an undisclosed price tag; and a local income tax diversion could total $400 million.
North Carolina may soon open its floodgates even wider as Amazon considers Raleigh: The state is now considering legislation that would divert some personal income taxes to employers for 40 years. For Atlanta, Georgia, another finalist, the state has two tax credits derived from payroll withholdings; one accountant estimated between $1 and $2 billion could be lost to the state treasury.
In Colorado where Denver—also a contender—is, workers pay a share of their personal income taxes to employers. The same would be true if HQ2 goes to Indianapolis, Indiana. But both of those bids are hidden from taxpayers.
Pennsylvania's state bid, which would apply to either Pittsburgh or Philadelphia—both are still in the hunt—has been estimated at $1 billion in incentives. But it's not yet known whether that sum includes the offer of a personal income tax diversion. Could this be why both cities refuse to disclose their first-round bids, despite rulings by the Pennsylvania Office of Open Records that they be released to the news media?
Taxpayers in all 238 localities that bid on HQ2 deserve to see every single penny. We have more important things to do with the money, especially because many states have enacted unwise tax cuts. Critical investments that benefit all employers, such as education and infrastructure, have not recovered to pre-recession levels.
We can't afford to mortgage our futures for one corporate headquarters; it's far too many eggs in one basket. As a Maryland taxpayer, I want all of that $4.9 billion going for schools, healthcare, safety, transit and infrastructure—not lining Jeff Bezos' pockets.
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