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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.
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.
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?
You really have no idea what you're talking about, do you? The political fight over state control of the Detroit municipal government has been going on for years. Try googling the terms "emergency manager" and "consent agreement".
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.
(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.
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.
The only part I don't get is why a data center needs 400 people, much less 1000.
It doesn't. They probably included the guy to plow the parking lot in those 1000 jobs. The local news stations are falling overthemselves with how many jobs this will create and bring to West Michigan without understanding how many people it really takes to run a modern data center.
Exactly, this is a very common tactic, whenever you hear "X will create Y jobs" without greater detail, you can be sure that Y is a hilariously overinflated estimate that includes anyone who could possibly have anything to do with the setup or running of X, right down to the guy who shows up once to install the sign on the building. This deception benefits everyone except the working class.
"When information is power, privacy is freedom" - Jah-Wren Ryel
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.
"...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.