Amazon's HQ2 Quandary: Go for Lower Taxes or Liberal Voters

(Bloomberg) -- The competition for Amazon.com Inc.’s second headquarters could come down to which city can offer a red-state business climate with blue-state culture. Or, at least a culture that won’t have Amazon’s workers seeing red.

A problem vexing chamber of commerce folks in Southern corporate hubs like Dallas, Atlanta and Raleigh, North Carolina, is that, while the cities offer attractive business climates, they’re also located in conservative-leaning states. Some companies boycotted North Carolina over its since-repealed “bathroom bill,” and more recently some Georgia politicians stripped Delta Air Lines Inc. of a tax break for severing a discount program with the NRA.

Finding the right business and cultural fit could vex Amazon as well. Tech company executives overwhelmingly lean left on social issues and favor lenient immigration and gay-rights policies, while also abhorring business regulation and labor unions, according to a study by Stanford University political economy professor Neil Malhotra and some colleagues. Amazon recently paused construction on a tower in its hometown Seattle after the city proposed a new tax to ease homelessness.

“Why are these tech executives so liberal? Why do they support the Democratic Party, when they disagree with issues on labor market protection?” Malhotra said. “I would say, on a lot of other issues they can’t imagine voting for the Republican Party.”

Some left-leaning cities on Amazon’s HQ2 list fare much worse in terms of taxes. New York has the seventh-highest "effective business tax rate” in the U.S. at 5.8 percent, according to a 2017 Ernst & Young LLP study that measures taxes against the size of a state’s economy. The national average for states is 4.5 percent. North Carolina had the fourth-lowest tax rate in E&Y’s study at 3.6 percent based on 2016 data, but sits in a state dominated by conservatives, according to a 2017 Gallup survey of political ideology. (North Carolina has since lowered its tax rate even more).

HQ2 contender Toronto doesn’t get a mention in the study as a Canadian city, but is considered a relatively liberal city with a diverse and highly educated workforce, though it lost its corporate tax advantage to the U.S. in the wake of Trump tax cuts. And the province of Ontario has the highest taxes in Canada, according to Charles Lammam , director of fisal studies at Canada’s Fraser Institute.

Malhotra sees Northern Virginia as the strongest region in the Amazon sweepstakes with more liberals moving into the region and a favorable business climate.

Ranking HQ2 contenders by political leanings is tricky, because corporations looking for progressive culture can find it in big cities even situated in deeply conservative states, said Megan Randall, a researcher at the Urban Institute in Washington. Political and tax climates, she believes, won’t factor as heavily into Amazon’s decision as each city’s educated workforce and robust infrastructure, including numerous flight connections.

Social issues like the transgender bathroom bill “may come into play if a company feels like from a social perspective, it is not representing its own values,” Randall said. “Certainly that’s a thing, but it’s hard to figure out how much of a game changer those things really are.”

--With assistance from Steve Matthews Brian Welcher Elizabeth Campbell and Jacqueline Thorpe

To contact the reporters on this story: Michael Sasso in Atlanta at msasso9@bloomberg.net, Margaret Newkirk in Atlanta at mnewkirk@bloomberg.net.

To contact the editors responsible for this story: Anita Sharpe at asharpe6@bloomberg.net, William Selway

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