Corporations Use their Clout to Shape Policy

By FOCUS, a Leonine Business


In May, the Seattle City Council unanimously agreed to pass a new ordinance known as a “head tax”, which would have imposed a $275 per-employee tax on businesses in the city that take in more than $20 million annually; the tax was primarily aimed at the corporate giants like Amazon and Starbucks, both headquartered in the progressive northwestern city. Proceeds from the tax were to be earmarked to fight the city’s growing homelessness problem and towards afford housing. While noting that it supports the ultimate aim of the tax, Amazon and other Seattle businesses naturally opposed the measure.


Amazon’s opposition to the tax was swift and effective. It immediately halted construction on a major construction project downtown, and alluded to the possibility that it could leave the city altogether. The opposition snowballed, with smaller businesses fearing that a tax on larger businesses, or Amazon pulling out of the city, could trickle down and hurt their business as well. Amazon also provided substantial funding towards efforts to place a repeal of the head tax on November’s ballot.


Corporate lobbying is not, of course, a new development by any means. Businesses large and small push their interests at every level of government by supporting candidates, lobbying state legislatures, or financing third party interest groups. What has increased, however, is the more recent trend of major corporations taking such direct action to either push a particular policy preference or extract policy concessions from a state or municipality. Alongside this growth has come more public visibility and awareness of these actions. In the case of the head tax the public itself was courted against the measure. An increase in economic competition between states has further acted as a catalyst in this trend. States have increasingly sought to portray themselves as “business friendly” or “open for business”, and in doing so encourage companies to relocate or expand into their borders.


Electric car manufacturer Tesla set off what may be the first of these state-level sweepstakes in 2014 when it courted potential locations for its so called electric battery “gigafactory.” Lawmakers in Arizona, California, Nevada, New Mexico and Texas all offered enormous economic incentives to the company in exchange for locating the plant in their state, expected to bring with it 6,500 jobs. In the end, Nevada won out by enacting a package that included a 20-year sales tax abatement, a 10-year property and business tax abatement, and other incentives including discounted electricity rates and transferrable tax credits based on total job creation. The success of Tesla in extracting such a major concession from the state has lead to similar sweepstakes by states or the purpose of wooing major corporate projects.


In other instances, corporations have mobilized economic blockades against states that pass laws seen as discriminatory and economically damaging. In 2016, North Carolina passed a so-called “bathroom bill”, which required individuals to use restrooms corresponding to their gender. Numerous corporations struck back swiftly, costing the state’s economy nearly $4 billion. Following the law’s passage, PayPal, the global payment processing company, canceled its plans to expand into the state, while the NCAA announced that the state would not be allowed to host any major tournaments while the law remained on the books.


In June, following an intense lobbying and public opinion campaign by Amazon, the Seattle City Council repealed the ordinance it had passed unanimously less than a month earlier in a 7-2 vote. Fresh on the heels of this success, the company is now very publicly courting municipalities around the nation as potential locations for its second corporate headquarters, known as HQ2. As with the Tesla case, states and cities are lining up in a race to the bottom to see who can offer the most attractive package of tax cuts and incentives in order to lure the online retailer, in hopes of long term economic advancement that the company promises to bring. Tesla, meanwhile, has announced plans to build at least four more gigafactories. North Carolina’s economically damaging bathroom bill has also been repealed –  however the damage has been done, and the case now serves as a stark warning to other states.