Does Amazon Cuomo's '$9 To $1' Sales Pitch Make Sense?

A parable: A man walks into a bar, and orders a drink. “That’ll be ten dollars,” says the bartender. The man hands over nine one-dollar bills.

“Hey buddy,” says the bartender. “You’re a dollar short.”

“But if I never came in here, you wouldn’t have any of my money at all,” says the man. “So by giving me a dollar and getting my nine dollars, you’re turning a 900% profit!”

The man is Amazon. The bartender is you, the people of New York. The man telling this story — telling it seriously, not as a hilarious punchline about grifting — is Andrew Cuomo.

From the minute that Amazon announced its Long Island City headquarters plan, observers have been trying to total up the value of all the city and state tax breaks, infrastructure slush funds, and helipads the company will receive as part of its deal — probably somewhere in the neighborhood of $3 billion. And almost as immediately, the governor has been pushing a counternarrative to the "handing moneybags to a rich guy" meme. Yes, Jeff Bezos will get billions of dollars in special dispensation, insisted Cuomo, but because that'll only be an estimated 10 percent of his company's total New York tax bill, taxpayers will still come out ahead.

“This is a big money-maker for us — costs us nothing, nada, niente. We make money doing this,” Cuomo said on Tuesday, adding, "The revenue-to-incentive ratio is 9-to-1. That is the highest rate of return for an economic incentive program that the state has ever offered." Two days later, he reiterated this argument: “You give us $1 billion, we’ll give you 100 back. I would do that all day long." On Monday morning, the governor published an “op-ed” on his website asserting, “New York doesn't give Amazon $100 million. Amazon gives New York $900 million.”

“Our offer essentially was, instead of paying us a billion, you pay us $900 million, hence, the 100 million per year subsidy,” Cuomo told Brian Lehrer on Monday, shortly after his press shop distributed the op-ed. “Now, we’re not giving Amazon 100 million a year, they’re giving us 900. ‘Well they could have given you a billion.’ Yeah, only if they came here, you know? Otherwise we would be out $900 million.”

The governor's math is drawn from an economic impact study conducted in October by Regional Economic Models, Inc., better known in consulting circles by its acronym, REMI. The REMI model is hardly a sophisticated look into how Amazon would affect economic conditions in New York City; rather, it's a plug-and-play set of algorithms that are supposed to estimate how much tax revenue results from a set of inputs — both directly from taxes on Amazon employees’ own earnings (which will largely be rebated by the city and state) and indirectly from taxes on money that Amazon and its workers spend at other local businesses (which the city and state will keep).

For example, the model uses a set of "Regional Purchase Coefficients" to estimate how much of Amazon's outsourcing and supply purchases will be spent in New York state — "data processing, hosting, and related services" are expected to come in at 89% local, creating an additional 616 jobs for New Yorkers, which may just be slightly optimistic for a company whose main business is in data processing and hosting. It also doesn't help matters that the REMI report used 40,000 new Amazon jobs as the baseline for its estimate, when the company itself is only promising 25,000, though it needs to hit the higher number to unlock additional subsidies.

And the total estimated tax benefit to the state, according to the REMI report, isn’t actually the $27.5 billion number that Cuomo has been touting. Since so much of the benefit will come two decades or more down the road, the positive fiscal impact is given as $9 billion in present-value 2019 dollars, compared to $1.4 billion in present value cost for just the state’s future tax breaks.

Okay, so fine: If the REMI projects are overly rosy, maybe it's not a 10% tax break; maybe it's 15%, or even 30%. If the remaining taxes are all gravy, as Cuomo asserts, should we care? Isn't 70% of Amazon-generated taxes better than nothing?

When put that way, it sounds almost reasonable. Put almost any other way, Cuomo's logic starts to break down:

It assumes that Amazon would not have come without this level of tax breaks. "All things being equal, if we do nothing, they’re going to Texas,” Cuomo told the Times on Tuesday. But that's not necessarily true: Arlington, Virginia, landed a similar jobs promise from Amazon with only about a third as big a subsidy offer. (Cuomo has said Virginia could get away with this because its income-tax rate is lower than New York’s, though others have speculated that Amazon just knew that New York tended to be looser with its corporate relocation spending than Virginia.)

For that matter, Google is reportedly set to add 12,000 workers in New York in exchange for no special subsidies, though it could conceivably be eligible for the same city tax breaks that Amazon is getting.) There's simply no way to know if New York could have landed Amazon with a smaller offer — which means Cuomo could have ended up leaving billions of dollars on the table that he didn't need to.

You could make a similar argument about any taxpayer in the state. There are more than two million small employers in New York state, most of which don't get to deduct a share of their taxes on the grounds that the state would make out even worse if they relocated their pizzeria to Texas. By giving tax breaks to Amazon — which, it is increasingly clear, is in the business of selling everything under the sun in order to drive every other retailer out of business — the state is giving a huge advantage to one corporation over its competitors.

And for that matter, it's not only employers who contribute to the state and city treasuries. The average New Yorker pays a little over $2,000 a year in state and local taxes; should they get rebates for not taking their spending to New Jersey? When you pay $2.75 for the privilege of riding the subway, should you be allowed to get some of that money back, on the grounds that if you'd stayed home the MTA would have earned nothing? It's a tempting argument — but a slippery slope to a world where nobody ever pays their taxes and the state treasury runs out of cash.

There are other ways New York could spend its money that would also generate lots of new revenue. More spending on education could boost the local economy, both by reducing poverty levels and by luring more companies with a highly educated workforce. Likewise, fixing the subway system could help attract more jobs, as companies are increasingly looking to locate in areas with the best public transit.

Of course, there's nothing stopping the city and state from giving money to Amazon while also funding the subway or schools. But it can't reuse the Long Island City land once it's handed over to the company, ruling out the chance of building something else there, whether the affordable housing originally planned for the site or a commercial property that wouldn't require tax breaks. (This is known to economists as an "opportunity cost," and is decidedly not accounted for in Cuomo's REMI numbers.)

Finding better places than Amazon for the state to spend its money has become the focus of Queens State Assemblymember Ron Kim, who is preparing to introduce a bill to eliminate state corporate subsidies and instead spend the same cash on using state condemnation powers to seize and pay off New Yorkers' student loan debt. This would be an economic boon not just for state residents struggling under a debt load, argues Kim, but because allowing them to spend their paychecks locally rather than sending them directly to Navient would provide a huge boost for the local economy.

There are costs to hosting Amazon, too. The potential increased costs to the city and state for improved transit service and additional housing to support Amazon's workers have been widely discussed by now, but there are other costs too, from schooling for new city residents to the potential for lost tax revenue from other retail businesses that may be driven to bankruptcy as the result of Amazon getting a taxpayer-supported leg up. (Cuomo told Lehrer that while he didn’t have numbers for the added public service costs required an Amazon headquarters, they would be “nowhere close to what they’re paying” in taxes.)

Normally, those costs of new development are supposed to be accommodated by the property taxes and business taxes that flow from the arriving company — but with $3 billion of those already carved out as tax breaks, New York will have less in the bank to pay its new Amazon-related bills.

Calculating "taxes paid" as a return on "taxes not paid" is just a seriously weird way of doing bookkeeping. “It’s not the way taxes work," says Fiscal Policy Institute deputy director David Kallick, noting that the whole point of taxes is to pay for the additional public services that a resident or employer needs. "If Cuomo wants to make a state investment in Amazon, he should also get an ownership share. That’s not a crazy idea, actually.”

None of which is to say whether enticing Amazon — or any other company — with tax breaks is a waste of cash or a necessary realpolitik business practice, which is a separate debate. “We just don’t think it makes sense to leave that revenue on the table,” says Cuomo spokesperson Tyrone Stevens, further noting that the revenue streams from “a company the size of Amazon” can’t be compared with those from an individual taxpayer.

But in implying that when you or I pay our tax bill it's our civic duty, while corporations paying their taxes represent a free windfall for the state, the governor’s logic relies on the notion that the minute a corporation's hands touch a wad of cash, it becomes "theirs," even if it's money that anyone else would have to pay in taxes.

I have previously dubbed this the Casino Night Principle, in honor of the Odd Couple episode where Oscar's gambling buddy cleans out Felix's opera club fundraiser by winning a big bet, then uses the cash to pay off a debt to Oscar, whereupon Felix immediately demands "our money" back.

Felix: Surely you’re not thinking of keeping that money?
Oscar: Why not? It’s my money!
Felix: No, it’s not! It belongs to the opera club!
Oscar: How do you figure that?
Felix: Well, Arnold got it from us, you got it from him, you give it back to us! Then everybody’s even!
Oscar: That can’t be right. See, I’d be out all this money.
Felix: No, you wouldn’t! You’d just be back where you started from!
Oscar: Yeah, but only Arnold wouldn’t owe it to me anymore. See, I had this money coming to me.
Felix: But it came from the opera club! From them to him to you to me! It’s like an isosceles triangle!

It sounds so much more ridiculous when Felix Unger says it than when Andrew Cuomo does. But then, Felix's opera club — like schools and subways and coalitions of pizzeria owners — doesn't have the governor hiring REMI to do studies on the benefits of giving it tax breaks. That's a perk reserved solely for the helipad classes.