Not two months ago, I shared my thoughts with you on why Seattle's city council was making one of the worst possible decisions of all time when it voted unanimously to pass a 2.25% income tax on city residents making more than $250,000 a year and on couples filing jointly who make more than $500,000 a year.
"If you treat money punitively, it leaves," I said.
And, when it does, I noted, "It takes hundreds of billions of dollars in highly skilled jobs, intellectual capital, and property values with it."
As part of that column, I cited two of Seattle's biggest and most profitable companies… companies, I might add, that critics (and probably city councilors) thought would find it "impossible" to leave.
Well, guess who just threw down the gauntlet?
Amazon.com Inc. (Nasdaq: AMZN) announced last Thursday that it intends to open a second company headquarters that it's calling "HQ2" somewhere else. Bear in mind that this a company whose operations have conservatively resulted in an estimated $38 billion pumped into the city's economy between 2010 and 2016.
The giant sucking sound you're hearing is the collective realization from those very same city council members who thought "taxing the rich" was a great idea a few months ago.
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CEO Jeff Bezos made his announcement very pointedly and succinctly: "Amazon HQ2 will bring billions of dollars in up-front and ongoing investments, and tens of thousands of high-paying jobs."
Not one dime of which will be spent in Seattle.
Then, just like any of the estimated 244 million buyers at Amazon.com, Bezos went shopping.
In a stroke of brilliance, he openly "listed" Amazon's requirements for its new home city and gave interested cities six weeks to respond.
The key highlights are as follows:
- The new location doesn't have to be an urban nor a downtown campus.
- Bids from interested cities will be prioritized with metro areas exceeding more than 1 million people at the top of the list.
- HQ2 will be located in a region providing a "stable and business friendly environment…"
- …and with the potential to attract and retain strong technical talent.
I can only imagine the feeding frenzy that will follow as interested cities around the country line up in their Sunday best to court Team Bezos.
Amazon Is Not Pulling Punches…
"Incentives offered by the state/province and local communities to offset initial capital outlay and ongoing operational costs will be significant factors in the decision-making process," the request for proposal reads.
The tax credits and location premiums NFL teams get every time they move are going to pale in comparison to what gets put on the table by politicians who actually want Amazon's money, in contrast to Seattle's feckless leaders who took it for granted until last week.
Amazon's announcement is the most scathing indictment of failed government spending and bad fiscal policies in recorded history. It's also a thinly veiled harbinger of things to come.
The way I see it, Amazon's put Seattle (and every tax-happy politician around the world) on notice that it does not appreciate being treated like a second-class citizen.
Critics counter that stuff like higher minimum wages and taxes have no effect on how businesses operate. What they fail to understand is that hostile regulations and policies are the financial equivalent of death by a thousand cuts in that they add up over time and are ultimately business killers.
Former Intel Corp. (Nasdaq: INTC) CEO Paul Otellini issued a bleak outlook related to the prospect of similar punitive regulations in California a few years back saying, "It's pathetic. I worry that we have to hit the abyss before we can fix things, and I worry that the abyss will be more like Greece."
Like Amazon, Intel also voted with its feet at the time, choosing to build a new $3 billion chip manufacturing plant in Arizona because of lower tax rates across the border.
Facebook Inc. (Nasdaq: FB) CEO Mark Zuckerberg quipped in 2001 that if he had to do it all over again, he would have "stayed in Boston."
Never forget one of the most fundamental rules of capitalism, and one of the most important when it comes to building Total Wealth…
Money flows to where it is treated best.
It doesn't matter whether you are talking about money moving overseas or across the country, the principles are exactly the same.
No amount of doubling down by naïve politicians on punitive policies will change that.
Carrots work better than sticks every time, which is why you want to reward success instead of treating it begrudgingly like a stray dog at a family picnic.
Businesses cannot maintain their profit margins – much less compete – when they are forced to pay higher costs and compete against other companies that do not bear those same impediments.
Companies will do what they need to do to retain more of their earnings and continue to grow.
You may not like that personally, but it's great for your money.
What This Means for Your Investments…
About the Author
Keith Fitz-Gerald has been the Chief Investment Strategist for the Money Morning team since 2007. He's a seasoned market analyst with decades of experience, and a highly accurate track record. Keith regularly travels the world in search of investment opportunities others don't yet see or understand. In addition to heading The Money Map Report, Keith runs High Velocity Profits, which aims to get in, target gains, and get out clean. In his weekly Total Wealth, Keith has broken down his 30-plus years of success into three parts: Trends, Risk Assessment, and Tactics – meaning the exact techniques for making money. Sign up is free at totalwealthresearch.com.