A Facebook co-founder wrote that the social media giant needs to be broken up because it’s a too-powerful monopoly. The Federal Trade Commission seems set to ding the company with a multibillion-dollar fine for its continuous refusal to safeguard user data (which amounts to a slap on the wrist for the company, but that’s another story). In response, Facebook is trying to sell everyone on a big “pivot” that will supposedly address the myriad criticisms that it is a privacy-invading, democracy-destroying blight on the population.
But about 1,000 miles away from Washington, Facebook is revealing another deleterious effect of its corporate power, one that federal regulators can’t really address: Its ability to convince cities and states to give it gobs of tax breaks.
Facebook, along with tech brethren such as Amazon and Google, have been hoovering up loads of public cash on the grounds that they create growth and new jobs, but with precious little to show for the taxpayers’ investment other than debt and despair.
In the latest example, Facebook is set to receive a 20-year property tax exemption from Altoona, Iowa, for construction of a data center, its fifth in the city. Instead of property taxes, it will get to make a lump sum payment that won’t total the amount it would have paid in property taxes.
This particular deal is bad on many levels. For starters, even city officials acknowledge that it hurts local businesses, which don’t benefit from similar exemptions. It trades a short-term boost for construction contractors — because data centers don’t employ that many people -- for two decades of lower property tax payments, which directly affects the funding for the local school system. More fundamentally, it seems unnecessary to incentivize a company to build a data center in a location in which it already has several others.
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The deal is also emblematic of a wider trend in which big tech companies pit cities and states against each other in order to receive subsidies, wielding the promise of “new economy” jobs in places the old economy left behind. Good Jobs First, which tracks corporate tax incentives, found some $2 billion in subsidies for big tech data centers in a 2016 report.
That’s almost certainly undercounting, since many locales don’t disclose to which companies they give corporate tax breaks or how much they cost. In the case of Altoona, the city didn’t say that Facebook was set to receive its property tax exemption until the deal was all arranged, since the social media giant pushed for a confidentiality agreement.
If you think this sounds a lot like the search for Amazon’s second headquarters, known popularly as HQ2, during which cities dove headfirst into competing over a tech giant with little to no public input, you’re absolutely right. Many cities still have not disclosed what they promised that tech giant for a slice of its new home.
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What is known is that Amazon has reaped billions in tax subsidies across America in recent years, while Facebook has pulled in some $300 million and Alphabet, Google’s parent company, has collected more than $800 million. That’s just a portion of the tens of billions of dollars in corporate subsidies cities and states dole out annually.
And all of that occurs despite the bulk of the academic evidence, which shows that giving companies tax breaks for the promise of an economic renaissance is for suckers. Study after study shows unemployment doesn’t decrease, incomes don’t go up and growth doesn’t improve for places that engage in such deal-making. Instead, towns such as Elmwood, Indiana, and Harrisburg, Pennsylvania, receive broken promises, broken-down infrastructure and broker citizens.
In the case of data centers, specifically, the cost of subsidies comes out to about $2 million per job created. Think how many workers the city could directly hire — even at above average wages — with that money. Or think of the investments in infrastructure, health care and education that could have been made, all of which have a bigger economic bang for the buck.
So why, then, do these deals continue to occur?
First is corruption: States that give out more corporate tax breaks see more officials wind up convicted of federal corruption charges.
More often, though, it’s simple economic desperation. Cities and states across America have been hollowed out by a combination of bad trade and tax policies, corporate consolidation and union-busting. A few jobs with the companies poised to dominate the future thus seem worth having now, even if the cost causes bigger problems later.
Perhaps most importantly, though, is that corporate tax deal-making works as a political strategy. Politicians who engage in more of it get more votes, building up political capital via the press releases, newspaper articles and ribbon cuttings that accompany corporate groundbreakings. Sometimes the president even weighs in to say that a deal is a slam dunk, encouraging local lawmakers to make it happen. And corporations are all too ready to pocket the windfall.
Facebook’s power, like the power of many corporations, manifests itself in several ways: It can bully regulators, sway members of Congress and hurt the local press. Its power to convince local lawmakers to subsidize all of that bad behavior is just as consequential. State and city officials should delete these deals as quickly as they can.