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Do Tax Breaks For Data Centers Make Sense? (datacenterfrontier.com)
1sockchuck writes: Does it make sense for state to offer tax incentives to lure huge data center projects? After an extended debate, legislators in Michigan have approved tax breaks for a $5 billion data center in Grand Rapids. The project from Switch, which previously built the SuperNAP in Las Vegas, brought the debate into stark relief due to the size of the project — an estimated 2 million square feet of data center space. States competing for projects often find themselves in a bind, since the highly-automated facilities create a limited number of permanent jobs, but many states already offer juicy incentives. Michigan ultimately sought a middle path, tying the tax breaks to job creation goals. If the data center jobs don't materialize, the breaks disappear.
Tax them. Do more with less. Data centers are a drain on natural resources.
It's rather obvious - the tax code should be simple. Without tax breaks for special interest groups.
The hodgepodge of tax breaks for this and that makes the tax code unfair, complicated, and leads to a race to the bottom between states, attempting to claw in industry by offering them the best deal.
American states should unify in some sort of federation, with a common, unified and simplified tax code - which should get rid of every single tax break on offer.
"American states should unify in some sort of federation..."
What an amazing concept!
The state dose not lose anything by giving tax breaks. It dose not cost the tax payer anything. May cause some expenses in some ways, but once the data center is making profit they will be paying taxes for many years. Jobs or not, the state will still benefit.
I realize what the author thinks is that that a tax break means the data center is getting tax payer money, which it dose not. The same as an oil company getting a tax break dose not cost tax payers anything.
With the state tying the tax breaks to having a job goal.... why don't the data center find a better state to build?
The tax breaks make sense for each individual state. Just like when you are arrested, and offered a plea deal to rat on your partners, it makes sense to do so: This is the Prisoner's Dilemma. It would be best if the states would all agree to mutually stop the tax breaks, but in the absence of such an agreement, it makes sense for an individual state to defect, and offer a break.
It is unfortunate that the courts don't ban these special tax breaks under the constitution's equal protection clause. No company should get a "special deal" that is not available to any other company. They should all be treated equally.
Unless we enforce a single tax code at the city, local, county and federal levels this will be a problem. Note, I'm not actually advocating that. As complicated as it can be sometimes different areas have different needs and different desires.
The town I live in refused to bend over for Walmart, who of course wanted a tax-break for a new location here a few years back. They are now just outside of town within a smaller town's city limits and all that sweet, sweet tax revenue now goes to them. Not only that, it's definitely costing their competitors a mile or so away some business (probably would have anyway) but that's also even more sales tax lost to my town. And their competitors are NOT mom-and-pop stores but rather places like Target and Kroger and Lowes.
I don't know if the Costco that was built across the street from the Walmart (still outside our city limits) got similar tax breaks.
The only people that tax breaks make any sense for at all are the poor.
File under 'M' for 'Manic ranting'
Tax breaks by local or state governments to win construction projects NEVER make sense, and should be outlawed as a form of unfair treatment under the law.
Small businesses hire FAR more employees and put FAR more back into the local economy than large companies who have the political clout to win abatements. Every tax abatement won by a company deciding to do business somewhere is an effective tax INCREASE on every other business and resident of that jurisdiction.
When a company moves into town, they are taking advantage of the roads, sewers, fire and police protection, schools, and other appurtenance of civilization, and they should pay their fair share for that infrastructure.
Speaking specifically about data centers -- they hire relatively few people, take up a large land mass, add stress to the local electrical grid, create buildings that drive down surrounding land values (who wants to live next to a windowless building with huge air conditioners?), etc. etc.
I'm not saying they are "bad" neighbors, but they certainly don't deserve a ticker tape parade, and they should pay their fair taxes like anyone else.
As people and the article have pointed out, a massive data center build (often in the middle of nowhere) doesn't really benefit the local population of an area. Unless the company is moving a ton of admin jobs along with it, the tax base doesn't even increase when all these incentives are factored in. You'll have security guards, facility engineers (HVAC etc.) and a very small rack-stack-fix type of staff. Also, in the case of public cloud style data centers, everything beyond the physical hardware replacement is software-controlled once the core is built out, so you won't have as many traditional sysadmins employed. Plus, the added power and public utility costs add up as well when you consider generation costs, building or improving roads, etc.
The thing about these special tax breaks is that states have to play Prisoners' Dilemma with each other. I live in a high-tax state (NY) and we're always hearing large companies with big New York operations threatening to move to North Carolina, Florida, Texas, etc. if they don't get a special tax deal. They do this because they know they can - the low tax states will do crazy deals to get companies to move there. A company I worked for moved to Orlando, and the state and city were practically building the company a new headquarters, building new roads and easing building restrictions to suit their needs. Plus, they got some insane tax abatement for 10+ years and cheap utility rates on top of that. When companies don't have to pay normal levels of tax, the only possible upside is increased property, sales and payroll taxes from employees that move in. The high tax states have to do at least some of this also, but it's an even worse deal for them usually since they have greater expenses to cover. Florida and other low tax states spend a lot less on education, they don't have to remove snow in the winter or perform as much road maintenance, etc.
Nobody should get tax breaks for anything.
Well if it makes sense for sports stadiums, then it stands to reason it must work for datacenters.
Confucius say, "Find worm in apple - bad. Find half a worm - worse."
Michigan really should be taken over by the federal government or somebody that can run it. They have a huge amount of revenue but let a little bit of the third world into the USA in the shape of a total lack of government care in Detroit.
Maybe they should just surrender to Canada again.
The best way to unify and simplify the tax code and eliminate tax breaks is . . . to stop assessing income tax which is completely immoral. Repeal the 16th Amendment.
...data centers tax YOU!
When a company moves into town ... should pay their fair share for that infrastructure.
I like the part where you ignore the multitude of people who are employed and likely have their lives (and incomes) improved by a massive factor.
No, you don't get to be a whore. Corporate tax, or personal income tax. Choose any one.
This is most likely an attempt to try and keep some goodwill with the data center companies because of the federal government's ongoing spying and the reputation damage (and loss of clients) that it's causing these companies.
Of course any data center company foolish enough to be influenced by the US government because of offered tax breaks after having their reputation tarnished, will continue have a poor reputation. People will just look at it and say: "Well, that company is officially on the take now."
It's a nice attempt by the US though, as even if the company is resistant to spying, they can come in and say: "Well, you took our tax breaks. I guess you don't want them next year."
Of course the money would be better spent getting rid of the overt spying problem and making an effort towards amends with the affected industry....
On the contrary: Income tax is very moral. It's the laws and rules and protections and education of a society that allows you to generate an income in the first place. And thus, you should reward the society with a share of your income.
Is an income tax more moral than a property tax or a sales/consumption tax, both of which reflect actual use of resources? Why should someone who makes good money but lives very frugally pay more in taxes?
Generally no. Race to the bottom, corporate welfare, etc.
But I kind of ask "What's the data center for?"
Is it meant to be a place to house fully automated, large scale, cloud services for companies based elsewhere, where the siting is purely about some kind of risk-management/engineering goal on a continental/global basis?
Or does it have a significant colocation component to it, where they expect to house servers for a regional base of customers at a price point where it may encourage localized business growth by providing a resource they may not have locally?
One thing I've noticed in Minneapolis is that with Target based here, there's like an entire sub-economy of businesses that work with Target. Just having Target based here means that many of those symbiotic business are here, too, which definitely means more local economic activity.
It might be that a regional data center may attract the same kinds of symbiotic businesses that exist because the data center is there.
It's rather obvious - the tax code should be simple. Without tax breaks for special interest groups.
The net result is a world designed entirely by corporations for what makes financial sense given the resources. Suddenly you'll be missing on a lot of investment, you drive economic growth to restricted parts of the country and as typically would happen with a country the size of the USA the winners would be states with resources while the losers would lack incentives to bring any form of economic growth to their states.
What you propose sounds good on paper, but there's a very real reason incentives are given by the government for certain things.
The final package, which passed at 11:30 p.m. Tuesday, would end the tax exemptions if the data center industry does not collectively create at least 400 new jobs in Michigan by 2022 and 1,000 new jobs by 2026. The package now heads to the desk of Michigan Gov. Rick Snyder, who had sought the assurances on job growth for the project.
I know there's a lot of contention here about offering tax breaks but states really are in competition for jobs. Getting past the moral dilemma of it, a dilemma I can't seem to muster, it is hard to see a downside to this. The perspective real estate--the Steelcase Pyramid Complex--has been vacant for some time now. It used to be a furniture manufacturing plant. Whoever buys it has to gut it and clean it up, as there are some nasty pollution problems to be remedied. Switch, the company that wants it, can go anywhere east of the Mississippi. I see no reason why they shouldn't look for the best deal.
The only part I don't get is why a data center needs 400 people, much less 1000.
You don't get the idea of States, do you?
You sound European.
Economically it doesn't make sense. It would make more sense to lower rates for all then pick and choose.
Politically it makes sense because a politician can show the actual jobs they had a hand in creating while ignoring the lost jobs that are impossible to identify.
I love Jesus, except for his foreign policy.
Is an income tax more moral than a property tax or a sales/consumption tax, both of which reflect actual use of resources? Why should someone who makes good money but lives very frugally pay more in taxes?
Why should somebody who makes poor money, but has to spend a lot more of a proportion of their income pay so much in taxes in sales taxes?
Especially when what society spends its taxes on does not seem to be producing as much of a result for them? Is that a moral choice?
If you want to condemn the poor, just do it, though people have been doing that from their own perceived moral high ground for centuries, so don't think it's anything new.
(I'm the OP anonymous coward).
I disagree with you. Not because you're flat out wrong - but because a system where special deals are offered individually through 'deals' with states, municipalities etc, is ripe for something rather nasty: corruption.
Furthermore, as I argued initially - you risk a race to the bottom. Something we can clearly see in the US - but we can also see this with corporate taxes in the EU. Countries 'underbidding' each other to attract investment. This is obviously not sustainable.
The government has a vested interest in having data centers on US soil where they can be easily accessed by various alphabet soup agencies. It only makes sense to incentivize placing them here.
For sales tax applied 'fairly' across the board, it drives up the prices for those who can barely scrape by as it is. Income tax has a way to provide relief to those with low household incomes. If you start trying to target 'conspicuous consumption' type things with a premium tax, you get back into a game of crazy loopholes to sidestep elevated taxes.
There are tons of problems with US tax code, but a focus on income versus consumption is not a deficient thing.
XML is like violence. If it doesn't solve the problem, use more.
You know there are other countries right?
Q: Why do we tax tobacco?
A: So people will smoke less.
Q: Why do we tax income? ... oh, wait ...
A: So people will
Gimme a break with your "society" bullshit and just say "government". Let's put aside the fact that confiscating people's wealth under threat of violence is morally wrong to begin with and assume government must take wealth in some fashion.
Apart from the inflation tax, the income tax is the most regressive tax imaginable. Why would you create a disincentive for people to engage in producing wealth? The mere fact that people are creating value benefits the society and increases its prosperity. If you want to tax something, tax consumption. Consumption is the destruction of value. Although it's necessary to eat food, burn fuel, etc. consuming things reduces the overall wealth of the society.
The USA economy based on "consumption" is a 30 year illusion which was only made possible by vast amounts of debt accumulation. As long as people persist in the ridiculous belief that "consumer spending" is the path to prosperity, the economy is going to suffer.
We should scrap the personal and corporate income tax entirely and replace them with the "Fair Tax"(fairtaxdotorg) then take other steps to transition back to a production economy. Our debt-fueled consumption economy and government "stimulus" economy is a house of cards.
However, the wealthier you are, the more options you have for creating new wealth, and those new options are often taxed at lower rates. Isn't that an incentive? I'm not sure what it really incentivizes, though. Lower taxes spur investments, and investments are supposed to benefit everyone. If returns on those investments drop, however, the first option exercised by most companies to increase profits is a workforce reduction, which only benefits the investors.
The hodgepodge of tax breaks for this and that makes the tax code unfair, complicated, and ...
and provides many opportunities for graft and corruption.
Income Tax, as practiced by the USA Federal Government, is immoral.
The entire Tax and Redistribution system implemented by the Federal Government is immoral.
Any research into the Federal Government's practice shows that it is horribly inefficient.
The Federal Government investigates and shuts down charities that spend as much on administration as the Federal Government does.
States and Local Governments distribute a higher percentage of dollars collected than the Federal Government ever has.
In welfare/help payments, the difference is staggering.
The more local the welfare/help, the more effective and efficient the welfare/help is.
Locals know the scammers and cheats; the Federal Government doesn't know or care.
Additionally, the Federal Government taxes at an abusive rate and denies citizens the responsibility of participation.
That is, people are paid not to work, to avoid taxes (through the underground economy as well as paying their tax payments for them).
The Federal Government creates a dependency which causes people to surrender the right and responsibility for their own selfs--their actions and outcomes.
Then the Federal Government, in particular, penalizes those who do take responsibility for their own selfs--their actions and outcomes.
A simple, unprejudiced look at economics shows that the self-responsible do contribute to society.
They buy goods and services. They create and produce. In spite of the Federal Government and its policies.
They contribute to educational and charitable causes at higher rates in the USA than other countries, even European countries.
You could actually go and try to buy all the services a society (and that includes much more than just a government) provides at market rates. And then you would find out that no one except the super rich can afford to live.
But here lies the first roadblock: "buying" is a concept only a certain type of society provides. Many tribal communities for instance don't know the concept of buying. Remembering the words we give to things and rules how to arrange words to transport meaning is a service a society provides, and it works perfectly well without a government. Remembering how to write and transfer this knowledge to the next generation is a concept a society provides, and no, it doesn't need a government for that. Transferring all knowledge written down to the next generation is a concept a society provides, and even then you don't need a government for that. And yes, the family is part of a society, and it can provide the basic services a society provides. But the scope of a family is limited. Most people you know are not family. But they are still society.
The need of a government arises when the number of people increases, so we more often meet people we don't know than those we know. Then one concept society provides, mutual trust coming out of knowing each other, is no longer working well. We have to organize the meeting of other people in a way that it pays in most cases not to harm them and that we have a good idea beforehand how they will behave. Organizing a society means rules, laws and persons tasked with keeping track of the rules and laws and enforcing them by deliberately harming people who don't stay within the rules - bang! government.
I agree, when taxes are used for something that benefits EVERYONE. Taxes are immoral when used on something that contradicts the individual's beliefs or when taxes are used simply to benefit somebody directly that may or may not have earned it. Taxes shouldn't be used to pick winners and losers, they should go to true community projects. It's easy to get 90%+ of people to agree roads are a necessity, but that doesn't necessarily mean income tax should fund health care for people that make unhealthy decisions or pay for food for those that are unwilling to put for the effort to raise themselves.
A datacenter will only create a handful of jobs once its been built, so there is no offset in the community for the lost taxes. It still costs just as much to run the city/state.
So the only people who benefit from these tax deals are shareholders and corporations, shareholders who don't live in the same state and corporations who use accounting gimmicks to move the profits offshore.
The locals end up either paying more in taxes, cutting services, running deficits, or more likely, all three.
The tax break was for sales and use taxes, Switch is in Nevada which doesn't have Income taxes.
Apocalypse Cancelled, Sorry, No Ticket Refunds
It's pretty constant in the news about companies threatening to leave the state and being offered tax breaks or trying to lure companies in by offering tax breaks. It seems more beneficial if all states would agree not to offer special tax breaks, of course everyone would have to agree to it, otherwise a few states could offer breaks and lure all the companies.
Society does not exist without Government, so you can't separate the two as you attempt to do. Even looking at the two definitions and being pedantic you can not describe one without the other.
What one can do is define various forms of Government and describe their powers and/or limitations. A Tribe of people being one of the smallest societies for humans has a form of Government. Some tribes may use Monarchy, others may use a democracy. Further, some monarchies may be more tyrannical than others. No matter how we define it, "Government" is universally part of society.
What you are attempting to do is claim that Government only exists within parameters of your opinion, which is wrong.
-The wise argue that there are few absolutes, the fool argues that there are no probabilities.
I work for a large hosting/datacenter ISP, and most of the work on the equipment in the datacenters is done remotely. All we really need on-site is some semi-competent remote hands to unbox, rack, and plug in the various pieces of gear into the racks, some security guards to keep the riff-raff out and escort customers into/out of their cages, cleaning staff to keep the dust and debris down, and maybe an onsite engineer who knows all the power, network, and cooling setups enough to fix them when they break, though usually even that last position is remote. The remote-hands folk do all the physical work. Everything else is done by contractors or people working in an office somewhere -- I'd say about 90% of the engineering/admin work is done this way. So a massive datacenter, once it's operational and filled with customers, doesn't usually have more than a dozen or two local employees. There are some exceptions, of course -- a high-churn center will need more people for escort and remote hands, and some centers are completely unmanned, just a locked room or building that's only visited when things go really wrong. If you want jobs, insist they buy office space for their techs and engineers locally, forget about the datacenter.
I don't believe the government should ever use tax breaks to encourage anything. Such incentives are often abused, and later we all pay for it. And any mass benefits are dubious to begin with.
If someone wants solar panels, 'let them eat eat solar panels'. But it shouldn't be on our tax dime the way I see it. Our history is rife with pointless breaks/expenditures.
Disincentives, I can understand and sometimes support.
Moral? What a joke. You have just redefined theft and aggression and oppression and violence as morality. Of-course that is what all oppressive governments (the collective, the mob) do, they redefine words and then they apply them creating a giant ruse and misconception.
Morality is in non-initiation of aggression. Governments are immoral by their very definition. Businesses are amoral, governments are immoral, governments by definition initiate aggression, use violence and oppress individuals. Income tax is absolutely immoral, it subjugates the individual to the government, to the collective, tot he mob, it creates a situation where an individual's income (labour, which means time) is owned by the mob and then the government can set the rate at whatever it likes.
So no, it is absolutely immoral to tax income. It is absolutely immoral to tax different people's income at different marginal rates as well. It is also a horrible economic policy, as in reality the people with higher marginal taxes do everything in their power to move income somewhere else, making sure that it is untaxed, but this creates a huge misallocation of resources and achieves the exact opposite of your supposed desired effect.
The effect that you are supposedly looking for is usage of the said income for greater economic activity. The effect that you are actually getting is removal of the income, off-shoring production and creating various wealth consuming strategies that are incompatible with greater economic activity, reducing the needed economic activity.
Obviously whatever you tax you get less of, so the economics are awful, but the morality is unquestionably horrendous.
You can't handle the truth.
"...If the data center jobs don't materialize, the breaks disappear."
If both of the data center jobs don't materialize, the breaks disappear. FIFY. Most such installations are worse than warehouses. Not only do they employ very few and eat a lot of land per job, but most of them suck a lot of power. Be a NIMBY and let it go somewhere else. You won't be sorry.
Nuff' said
more poor, more cuts in necessary services, wash, rinse repeat.
ANYONE hear about wage depression?
Major router centers only hire during installation and setup.
After that, it is 100% remote administration with a tiny core of in house rack replacement workers at minuscule wages.
The tax breaks, however, become the new "normal" and every effort to put the city back on a profit basis becomes "Tax hikes" and here we go again.
Did you people learn NOTHING from the 2008 crash?
Do tax breaks for churches make sense?