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Business Observer Friday, Oct. 27, 2017 11 months ago

Amazon doesn't deserve a dime

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Politicians and economic development pros love to go hunting for prizes like Amazon. But when they give out subsidies, they increase the tax burden on everyone else.
by: Matt Walsh Editor

Really, Carlos?

That was the first thought after learning Manatee County entrepreneur, homebuilder and developer Carlos Beruff decided to enter the give-away-the-farm-and-everything-else contest for Amazon HQ2.

Manatee County? Headquarters 2 for the fourth most valuable company in the U.S.? Ha.

But you have to give Beruff credit for his outlook and philosophy.

“Hey, I'm an eternal optimist,” he told us. “If you don't get in the batter's box, you not going to get a hit.”

He chuckled. “I've blown $45,000 on worse things,” he said.

Beruff and his colleagues at Medallion Home and Cargor Partners VI presented Amazon with a 52-page proposal last week shortly before Amazon's deadline. When you read through the proposal, subtitled “Everything Grows Under Sun,” you can give him this: Beruff makes a good case for the 933 acres Cargor owns in north Manatee. The property borders the east side of Interstate 75, is just east of Port Manatee and just south of a 1 million-square-foot Amazon fulfillment center in southern Hillsborough County.

Click here to read Beruff's proposal.">
Click here to read Beruff's proposal.

No doubt all 238 bidders — including bids from Tampa Bay, Miami-Dade/Broward/Palm Beach, Orlando and Jacksonville — believe they make convincing cases. But here's the best, most convincing part of Beruff's proposal:

Unlike most of the bids, Beruff's proposal does not offer or propose one dime of taxpayers' money or subsidies.

“I'm a capitalist,” Beruff texted.

Which means his site and proposal, in almost 100% certainty, will not be chosen. Amazon specified in its RFP that “incentives ... will be significant factors in the decision-making process.”

So here we go again ... on the precipice of what is likely to be a record-bursting, new standard in corporate elephant hunting, of local and state politicians throwing their taxpayers' money at yet another company that doesn't need or deserve a subsidy.

All of us have seen in recent years some — we emphasize “some” — rising resistance to taxpayers' subsidizing professional sports' teams stadia (Sarasota and Lee counties and Jacksonville excluded). Enough of the handouts to billionaire team owners. But that movement hasn't dampened what goes on in corporate America.

For what earthly reason would any rational person think Amazon and Jeff Bezos need taxpayer-financed “incentives” to do what Bezos says it's going to do anyway — invest $5 billion over 15 years and hire 50,000 more people? We know, we know. This is the response you hear from every economic development recruiter: “It's a reality; it's what you have to do to compete.” And then there's all that business babble about multiplier effects and ROI.

But start with some perspective: Amazon CEO Jeff Bezos' net worth is estimated at $83 billion. His company is valued at $740 billion, and it's carrying $26 billion in cash and securities on its balance sheet. He and the company could write checks to build the next HQ2 over the next 15 years and hardly notice.

And yet, Amazon already has received more than $1 billion in tax subsidies in the past five years as cities and states try to make themselves look more attractive — in spite of their ugly business and tax climates. What's the insult: putting lipstick on a pig?

Did Florida, Tampa Bay, Orlando and Jacksonville really need to give Amazon the subsidies it did to open five fulfillment centers in the state? Of course not! Florida is the third most-populous market in the nation, and even a dense business executive could conclude it would be economical and efficient to have close access to 20 million potential customers.

To a degree, Amazon and its executives are acting rationally trying to get states and communities to offer them the best deal — where the company can be most efficient, competitive and attract talent.

But we also question those executives' moral thinking in their willingness to accept subsidies at the expense of people who can't afford it. We always go back to the Milton Friedman-Mercedes Benz example in Alabama in the early 1990s.

Mercedes negotiated a $300 million incentive package from the state of Alabama to build its first U.S. manufacturing plant. When we asked Friedman at the time his thoughts on the incentive package, he invoked what now can be called the Friedman-Arthur Laffer Rule of One. Said Friedman:

“Go ask the fixed-income widow in Mobile, the woman who will never drive or be able to afford a Mercedes, how she feels about the state taking her money and giving it to the affluent executives who run Mercedes so they don't have to spend as much of their own money to build that plant?”

Likewise, the politician who bestows other people's money on these corporations should think about the “unseen.” When the politician sees that Amazon headquarters or fulfillment center, the politician can say: “See what I did for my community? Look at all those jobs I created.”

But he forgets about the “unseen.”

Say Florida lands the Amazon headquarters, and the subsidies are in the hundreds of millions or as high as what Wisconsin promised Foxcomm — $3 billion. How do you think Publix Super Markets' executives will feel, now that Amazon-Whole Foods is a direct competitor of Publix? Or consider the local owners of the downtown brick-and-mortar women's clothing boutique, children's toy store or book store — all of whom compete with Amazon.

Having local and state politicians subsidize Amazon with these retailers' tax dollars is a stinging slap in their face. Their costs of finding, hiring and keeping talent will go up; their cost of business will go up — all the while their tax dollars help Amazon succeed.

Go one step further. Consider the $740 billion (market value) Amazon versus the thousands of the small, Main Street-type businesses whose owners and employees are the backbone and heart and soul of what makes your city what it is. They — some of them over multiple generations — have paid taxes year after year, decade after decade; toiled through good and bad times; and, no matter what, they continued to contribute time and treasure to local causes — in their civic commitment, as well as self-interest, to make their communities great places to live.

And here's the thing: They haven't taken a dime from government. But they are the ones who care most and are most invested in your communities' futures. If there are to be subsidies — and there shouldn't be — who deserves the subsidy?

It's difficult to comprehend how politicians who ask for people's votes and trust, without compunction, can take constituents' tax money and bestow it on an out-of-towner business — at their constituents' expense. This is what Austrian economist Friedrich Hayek called the “Fatal Conceit” — the title of one of his seminal books. This is when government officials act as if they have the knowledge and ability to grasp all of the nuances and details of society and decide what's best for everyone rather than leave the millions of people with their rational minds and actions to decide on their own.

Who's to say, the late Milton Friedman asked, that Alabamans would not have used that $300 million to create something as great or better than the Mercedes-Benz plant? Who's to say however many millions of taxpayer dollars some state gives to Amazon that, if left in the hands of taxpayers, they would not create another or other ventures as productive or more productive as Amazon?

Ask any business owner. He or she will tell you what he or she wants from government is little — little interference and little intrusion. And he wants fairness, a level playing field. Let the best business win on its merits.

Likewise with states and local governments. When they offer tax breaks and subsidies to a few ivory-tusked elephants, they in turn are increasing the state's burden on everyone else. Instead of awarding favors on a select few, states and local governments should compete on their merits, too — on their business climates, tax climates and quality of life.

If Amazon measured its choices that way, Florida's prospective sites and cities, especially Beruff's 933 acres, would make a lot of sense.
Click here to read Beruff's proposal.">
Click here to read Beruff's proposal.

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