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  • February 26, 2019
  • Chuck Osborne

Concrete Jungle Not Rain Forest

Amazon is no longer welcome in the Concrete Jungle of New York City. I’m sure you have all heard by now that Amazon has canceled its plans to build a headquarters in the Long Island City neighborhood of the Queens borough in New York City due to political opposition led by local politicians, most notably Rep. Alexandria Ocasio-Cortez. 

Ocasio-Cortez first became famous for winning an election last year as an open socialist. It makes sense that she was against this deal from the start, but it was her immediate reaction after the fact that really got my attention. 

The “problem” with the Amazon HQ2, as they were calling it, was $3 billion in various tax incentives and grants that Amazon was receiving from New York. This amount got people up in arms, which in my opinion is understandable. Why does Amazon deserve a $3 billion break? I’ll get back to that; however, when Amazon’s decision to pull out was made public the news cameras found Ocasio-Cortez in the halls of Congress. They asked for her reaction and she was in a celebratory mood. She claimed victory for the people and then said something extremely revealing: she said that New York can now spend that $3 billion on teachers and other such beneficial things. 

This goes into the category of You Just Can’t Make This Stuff Up. Let me explain. The estimates for the tax revenue generated by Amazon were $27 billion over the next decade. I have seen more modest estimates from $10 billion to $17 billion, so I’ll use the $17 billion number for a nice round number. If that number were correct, then it would mean that Amazon would have actually been responsible for $20 billion in taxes of one form or another, but because of their deal, New York would agree to take only $17 billion. That is the source of the $3 billion. 

Let’s put it another way. Let’s say one goes shopping and a store says that if you buy $100 worth of stuff, we will give you a 25 percent discount. Does the store lose $25 or gain $75? Obviously the store is collecting $75 from the customer. If the customer shops somewhere else because protesters call them names for receiving a discount, then the store does not save $25, it loses $75. When Ocasio-Cortez chases that discount shopper away, the store does not magically now have $25 that it can give its employees. 

I understand how common people who probably are not giving this story a lot of attention may be confused when the media keeps repeating that New York was “giving” Amazon $3 billion. I get how this can be misleading. What is disturbing, though, is that at least one person currently serving in Congress evidently thought the same thing. Peggy Noonan of The Wall Street Journal gave Ocasio-Cortez the benefit of the doubt and suggested that she was being purposefully misleading. I was once advised that if my only choice was to work with someone who was unethical or someone who was incompetent, then I should choose unethical; but it sure seems like we should have better choices. 

Should cities like New York give tax breaks to companies like Amazon? That is a completely different question and, in my opinion, the answer is no, they should not. Every company, just like every individual, should play by the same rules. From my perspective the real solution would be for cities like New York to reform their tax system so that companies like Amazon would want to be there. When the enemies of capitalism point to deals like Amazon’s as an example of what is wrong today they are half right. The problem is that they don’t seem to understand it is the high tax policies that they support that lead to deals like this being made. They blame it on capitalism, but there is nothing capitalistic about different companies having different rules; no, that is what happens under the system that Ocasio-Cortez says would be better. You just can’t make this stuff up. 

Warm regards,

Chuck Osborne, CFA
Managing Director