New York City’s archaic, subsidy-fueled approach to economic development was already in desperate need of reform before Covid-19 struck. In the wake of the pandemic, the city can no longer afford this approach. In an era in which jobs are increasingly disconnected from location, New York must stop trying to influence big-business site selection with massive targeted tax breaks and other subsidies.

In its 2019 annual financial report, the city reported losing roughly $3.8 billion in various forms of tax abatements. That’s more money than the $3.4 billion in revenue the Department of Finance collected from the General Corporation Tax (GCT) on “S” corporations doing business in the city and more than the city budgeted in its November 2019 financial plan to run both the New York Fire Department ($2.1 billion) and Department of Corrections ($1.3 billion).

The evidence is more abundant than ever that these tax breaks are useless. Across the country, studies are reaching blunt conclusions that “incentives do not create jobs,” and that cities shelling out more on subsidies spend less on basic public services. Economic-development subsidies have also been connected with declines in innovation, entrepreneurship, and fiscal stability. (Lobbyists and expensive consultants have done well, however.)

The fatal flaw of these subsidies is that they’re rarely large enough to override site-selection factors such as workforce availability and labor costs, location of customers and competitors, regulatory burdens, property values, and other considerations that can make or break a business.

That’s especially true in New York City, which offers a unique array of business-critical costs and benefits. As the city learned from the Amazon HQ2 bid, even billions of dollars in subsidies may not be enough to balance broader political and cultural burdens that come with doing business in Gotham. Amazon’s willingness to abandon its plans demonstrates the importance not of subsidies, but of doing everything possible to remove artificial barriers to success in New York for as many people and businesses as possible.

Focusing on broad quality-of-life issues doesn’t mean abandoning the concerns of big business. As a group of more than 150 major business leaders told Mayor Bill de Blasio in a September 2020 letter, “People will be slow to return unless their concerns about security and the livability of our communities are addressed quickly and with respect and fairness for our city’s diverse populations. We urge you to take immediate action to restore essential services as a necessary precursor for solving the city’s longer term, complex, economic challenges.” The letter’s signatories included chief executives at Mastercard, Pfizer, Citigroup, NASDAQ, Macy’s, Morgan Stanley, Revlon, Goldman Sachs, News Corp, along with many other prominent New York corporate names.

De Blasio didn’t seem too worried. Either New Yorkers would come back, he said, or “they will be replaced by others who bring a lot of creativity and talent.” Other local leaders appeared to share the mayor’s apathy. “[T]his is not the world’s first pandemic; and previous pandemics did not permanently impact the fundamental economics of cities as centers of relationship building, innovation, idea sharing, and creativity, or lead to permanent flights to rural areas,” wrote city comptroller Scott M. Stringer.

But businesses dealing with the last great pandemic a century ago didn’t enjoy the options of email, video chat, and messaging apps. As a recent article on Goldman Sachs’ plans to move jobs to Florida noted, “Among Goldman managers, one takeaway of the pandemic is that the bank can function efficiently from disparate locations.” It’s widely estimated that between a quarter and a third of American jobs can be done largely remotely.

The new reality presents New York with a serious challenge of residents eying the exits: more than 44 percent of high-income New Yorkers have considered relocating, and 30 percent say remote work makes it more likely that they will move away. In this environment, continuing to subsidize businesses as in the old days will make little difference. Businesses are facing existential questions about the future of work and grappling with the implications of a newly liberated workforce. A tax credit isn’t going to decide those issues for them.

A healthier, happier, and safer city might, though. That’s why New York’s next mayor and its next generation of leaders should focus on the issues that matter to everyone, such as quality-of-life improvements, reducing burdens on businesses and workers, and finding other ways to make New York a better place to run a business and create good jobs.

Photo by Spencer Platt/Getty Images

Donate

City Journal is a publication of the Manhattan Institute for Policy Research (MI), a leading free-market think tank. Are you interested in supporting the magazine? As a 501(c)(3) nonprofit, donations in support of MI and City Journal are fully tax-deductible as provided by law (EIN #13-2912529).

Further Reading

Up Next