Thinking about the loss of Amazon in Long Island City, I realized that many people don’t understand how tax credits work. That’s totally understandable given that the tax codes and credits change so much that it’s almost impossible to keep up with. Personally, I have always found tax credit underwriting confusing yet beneficial, particularly through my work in affordable sousing. In a similar vein, tax credits should not be the only thing we focus on when assessing opportunities for the city. Everyone has their own ways to view and ‘correct’ our economy whether it be through taxes and tax credits or government spending. At the same time, I feel other economic measures often make more sense to determine if something is a good deal or not. The ones that come to mind are the circulation of the dollar, natural fluctuations of supply and demand without government intervention, and assessing the full opportunity costs, including direct or indirect.
A client recently sent me an article on how the destruction of the Amazon deal is causing many to assess the true value of the corporate tax credits and incentives. Just questioning the value of this “one tool”, the corporate tax credit, is beyond damaging to so many industries that employ New York City’s workforce. If a corporate tax credit vanishes, often so do jobs in New York City for our working class, across all categories: low, moderate, and middle class. When you throw a pebble into a lake, it always causes bigger ripples than one would expect from such a little stone. This is exactly what occurred with the loss of Amazon. A few voices broke through and ultimately caused what is arguably a huge loss for New York’s economy.
They may have not thought their voices would get Amazon to pull out of New York, but they did, and we have not begun to experience the full volume of the loss to New York City’s economy that will endure from losing such a prominent company. This loss will reverberate across many industries in our city for some time.
A recession, or market correction, will hit New York in the next few years. It is a cycle that always repeats no matter how much is done to avoid it. Interest rates will rise, and the real estate industry will come to a standstill. Equity will not be able to meet rising prices yet there will be a huge supply of deals at old pricing expectations. Transactions will come to a standstill. New construction won’t happen, and jobs will be lost in construction, development, architecture, management and in so many ancillary industries that rely on real estate development and construction. What will keep moving will be the projects, in state and city agencies, that support affordable housing thru the use of low-income housing tax credits We need to incentivize corporations, like Amazon, to locate here. We also need to better educate the general public on economics and tax incentives.
It isn’t just now we have to plan for, but the future as well. We were giving Amazon tax credits in the billions from money we don’t even have yet. They would have created billions for us to give them the billions in tax credits. It isn’t like we had the money set aside to give them. They would have employed a work force making the income that would be taxed, to get back those tax incentives we ‘gave away’. Long Island City is a neighborhood already on the rise, but with a recession inevitable it will likely be hit hard. If Amazon, which I would argue is a rather recession proof company, was there, LIC would be one of the few areas to continue to thrive with opportunity, even through an economic downturn. Amazon is a conglomerate of companies today. Supplier. Delivery company. Consumer goods store. Warehousing. Web service. Entertainment. Cloud service. Small business (online) supporter. And so many more things. These jobs are a huge loss. The circulation of the dollar would have been at high numbers for this community, let alone NYC. The more a dollar circulates, the more that dollar makes in tax revenue for a city.
And it is not just the Amazon jobs we lost, but the indirect discussions around tax credits this prompted, threaten to destabilize them in the future. To even question corporate tax credits is a potentially dangerous and much larger discussion to have without any real understanding. It’s also a discussion that could potentially lead to people losing jobs, negatively affecting NYC families. Tax credits don’t just affect affordable housing, but the many other industries that live off tax credits, including the construction and film industries. Our work force, our city, will be undermined by not having tax credits remain strong and sustainable.
We lost Amazon and we can even go as far as saying we almost had our city and state lose all corporate tax credit incentives at once. Sure, tax credits benefit corporations, but they also benefit millions of our working-class families who are often living pay check to pay check. Let’s not forget this as we look to the future. We’ve already extended some tax credits, like the film production and housing tax credits, but as we continue the conversations around these incentives in future years, we need to keep in mind all potential benefits versus just focusing on what we are ‘giving away’. Often what we are ‘giving away’ we don’t have yet, but only if the potential company comes. As an economy we need to look at all the economic benefits that come with attracting major corporations. I strongly feel with solid recession proof companies the potential benefits will outweigh the fears and criticisms.
As a city and state, we need to be cognizant that losing corporate tax credits would affect many of the things that make New York City “New York City.” Most importantly it would directly impact the New Yorkers who live and work here.
Heidi R. Burkhart, Founder and President of Dane Real Estate, is a 17-year veteran of the real estate industry who has facilitated the preservation and closing of tens of thousands of affordable housing units, generating over $2 billion in transactions.