Two recent stories published by two major media outlets in two different nations within four days help to capture a major challenge faced by governments today.
On the 8th September, The Wall Street Journal reported on Amazon’s recent announcement that it was looking for a second headquarters. This announcement triggered an immediate investment war. The WSJ reporter observed, ‘The competition to win Amazon’s business likely will be fierce and could break records for tax incentive packages’.
According to the report, Mark Sweeny, a consultant who helped to broker the £8.7 billion incentive package that enticed Boeing to Washington in 2013, predicted that Amazon’s final deal, after taking into account tax rebates, training grants, public transport and expedited permit approvals, would be worth a similar amount.
The Richmond Times opined that Central Virginia could be ideal, but the region wouldn’t be able to afford the necessary ‘incentives’.
On September 12th, the Guardian in the UK reported on a study that found that Amazon pays 11 times less corporation tax than high street booksellers.
On top of that, our Corporate Welfare Watch database shows that Amazon extracted tens of millions from taxpayers to fund investments and road links in Scotland and Wales. I elaborated on this in my 2015 report on the British corporate welfare state:
Amazon was accused by the Public Accounts Committee of the House of Commons in 2012 of aggressively avoiding taxation in the UK. In particular, it was accused of masking profits by claiming that its major ‘economic activities’ take place outside the UK and for avoiding VAT by shipping CD and DVD products direct from Jersey while charging the customer the full VAT rate. What was not raised by the Committee was the fact that during this period the company was awarded £7.7m to support the building of a distribution centre in Fife, Scotland and £8.8m by the Welsh Assembly. The Welsh Assembly also built the ‘Ffordd Amazon Road’ to link the new distribution centre at a cost of £3m.
The picture is an all too familiar one: companies making increasing demands on ordinary taxpayers whilst conspiring to avoid paying taxes themselves, thereby undermining the whole tax system.
Meanwhile, smaller, high street booksellers are going out of business, at a rate of 3 per cent per year, according to the Booksellers Association. Each closure takes a little bit more from the local economy and redistributes it to Amazon’s bosses and shareholders. Meanwhile, the new jobs are low paid, exploitative and also subsidised by taxpayers who, on top of the grants they’ve paid and the road network they have built, subsidise its training costs before subsidising its low-paid workers through the benefits system.
Brexit is only adding to the pressure. Across Europe, governments see in Brexit an opportunity to poach investment from the UK. The British government is fending off such advances by putting in place incentives of its own. A European bidding war is as inevitable as it was predictable. Rather than taking back control, power is being ceded to big business.
The story, which isn’t restricted to Amazon, should be politically explosive and it should lead serious politicians to ask questions and seek changes. But it is seldom told in simple terms. So here goes.
Citizens and small businesses pay their taxes. Some of this is redistributed by governments who are desperate to attract and retain investment from big businesses. Those same big businesses are provided with incentives to invest — favourable tax deals, low regulations, cheap labour, grants and other subsidies, access to markets, etc. Those same businesses then often engage in tax-dodging practices (legal and illegal, which provides them with a further competitive edge over smaller businesses unable to access quite the same level of ‘state benefits’). Small businesses fold. High streets fail. The local and national tax base is undermined. Big businesses grow ever-larger, rewarding company executives and driving ever-growing gaps between the rich and the poor, on top of the gaps between small and large businesses. Consumers end up with a worse deal. The social and economic costs grow at a rate that the hollowed-out tax system cannot cope with. And big businesses fund campaigns against increasing taxes that may help to fill the void and fight regulations that would help to protect workers or consumers, because such moves would undermine their profits.Some will argue that Amazon has grown because it
Some will argue that Amazon has grown because it provides a great service. And to a large extent, this is true. But it does so because taxpayers pay many times over — through the tax system, through grants and subsidies, through public services, through their depleted high streets. The returns to consumers begin to fade if we strip out the other concerns. But all this raises two key questions: 1) Should the taxpayer subsidise Amazon so heavily and aid its dominance? 2) If they should, can’t we expect a little more from the company? Like paying its taxes?
Kevin Farnsworth, Corporate Welfare Watch