High salaries, but also obscene tax breaks resulting from unbeatable bargaining power, are widening the gap between the rich and the poor in many US cities.

[This version corrects a mistake and adds detail about the number of subsidies per job created]

Recently, a CEO of a roaring unicorn in Silicon Valley drew my attention to the following: “If you compare Amazon’s stock price over the recent years against the cost of housing and the rise of homelessness in Seattle, the progression is identical…”

He is mostly right. Over the last five years, Amazon stock has grown 5.6 times. In the meantime, in Seattle, where the e-commerce giant is headquartered, the number of people making at least $250,000 a year increased by 50 percent, pushing the average price of homes by 70 percent. As for the homeless population, it has grown 3 times since 2010. With 11,000 homeless for the entire metro area, Seattle is now the third largest homeless city in America behind New York (76,500) and Los Angeles (55,000). As for the Bay Area, the homeless population officially numbered in the counties of San Francisco, San Mateo, San Jose, and Santa Clara hovers at 15,500.

In Silicon Valley, the reactions will fall into three categories. Annoyance: “I paid two million for my house in San Francisco and there is a tent village down my block”; denial: “Ok, there is a string of RVs along Stanford campus, but the number is actually limited”, or reviving a rhetoric from the Reagan era: “You know, most those people actually chose to live in RVs”. This reasoning ignores the rise of the working poor: in Palo Alto where the homeless population grew by 26 percent last year, 41 percent of them say it is their first time being in this situation. Similarly, in Seattle, 35 percent of the population deprived of regular housing has some college degree.

Another category of citizens begins to realize that the situation is untenable. These are not losers or “democrat-socialists”. They are entrepreneurs or skilled tech workers who love the energy and the vibrancy of the industry, but are also concerned with its sustainability on the long run. They view the world around them. Like the Stanford professor who realizes that one of his 25-year-old students has been sleeping in her car for the entire quarter, or anyone who talks to a Uber driver and realizes that they live in Sacramento or Stockton, two or three hours away, or the guy who fixes your solar panel who had to wake up at 3 A.M. to be there at 8 A.M.

The “super-commuting” (enduring more than 90 minutes drive each way) is another feature of the Bay Area lifestyle. Between 2005 and 2016, people pouring into San Francisco after a long drive has gone up by 112 percent to 104,000, while the number of super-commuters going to San Jose has doubled to more and than 24,000. (As a comparison, New York has more than 600,000 super-commuters, but the growth is more reasonable: 15 percent between 2005 and 2016.)

In response to that, tech companies’ response has been to pamper their workers even further by providing free transportation in luxury buses where they can work comfortably. In 2016 (the latest figures available), 35 tech companies operated a network of private buses making 800 trips a day from San Francisco alone. Others who want to avoid the heavy traffic rely on the Caltrain, a railway that stretches over 50 miles between San Francisco and San Jose. Everyone who traveled in Europe, where fast and comfortable trains are widespread, will find miserable the single two-way tracks and the clunky diesel-powered locomotives for one of the wealthiest regions in the world.

Such imbalances result of a double failure: the actual concept of a city where jobs are supposed to congregate in a single place, and a public policy blunder who fails to anticipate and address the issues — despite, again, a gigantic tax base.

No wonder why millennials are considering to leave the Bay Area: according to a recent poll by the Bay Area Council (PDF here): 46 percent of the 18 to 39 year-old, and 40 percent of all ages residents are ready to leave the Bay Area in the next few years, citing traffic and housing.

One would think that Silicon Valley leaders, surrounded by cohorts of multidisciplinary experts, would try to correct the issues by rethinking urban planning, devising efficient mass transportation systems, etc.

Not only they didn’t do it, but they make the problem worse.

Two examples: the 61-floor Salesforce tower in San Francisco and Amazon’s new headquarter, AKA Amazon HQ2. The first one will only increase the congestion of downtown San Francisco with a net addition of thousands of workers.

In the end, local taxpayers will subsidize Amazon shareholders

The selection of Amazon’s new hometown, it has led to the most cynical corporate beauty contest ever. A first batch of 200 cities was approached, with a choice narrowed down to 20, ready to fight tooth and nail for the prize. Amazon came up with its demands — public transportation, proximity to an international airport nearby, a sizable talent pool (universities, research centers), etc. But the most critical part is the $5 billion to $10 billion tax break requested by Amazon.

Let’s put this in perspective. In 2017, Amazon collected $5.6 billion in profit, but paid zero federal taxes, thanks to multiples tax schemes. Even better, since 2008, Amazon paid $1.4 billion in taxes when Walmart paid $64 billion. Not only Amazon does not have enough with an effective tax rate of 11 percent for the last five years, but it wants more from American cities widely known for their crumbling infrastructure. New Jersey is ready to cough up $7 billion in tax advantage (think about it next time you drive west of New York City).

From a pure accounting perspective, this is the equivalent to having taxpayers subsidizing Amazon’s shareholders. Compared to that, the Robber Barons are like Mother Theresa.

These tax breaks are not free money. The exemptions granted to Amazon (or Apple which is also looking for another campus, or Tesla, or Foxconn), is part of a zero-sum game in which the contribution will come at the expense of something else, as explained in a series of articles by the Guardian (read Big Tech, Desperate Cities).

Tesla’s tax effect on the Nevada economy offers a perfect example: the fiscal profligacy granted by elected officials to attract the company’s huge battery factory translated into tax hikes for local residents and cuts in bus routes, among other things. To add insult to injury, Tesla decided to sell $131million in tax credits (about 10 percent of its expected tax benefit) to Nevada casinos.

When it comes to fiscal greed, Tesla and Amazon are neck and neck. Concerned about the degradation of their city, Seattle’s officials came up with the idea of a special tax on large local businesses that would have translated into a $275 charge for each Amazon employee. This is pocket change compared to the expected tax advantage Amazon will get for its new headquarter: $5 billion for a direct job creation of 50,000 equals to a subsidy of $100,000 per job granted to Amazon. Certainly not a record for the matter, as noted by The Guardian (emphasis mine):

Hi-tech firms are prominent among recent tax-break “megadeals” awarded by cities and states. Tesla’s battery factory ($1.3bn from Nevada), Foxconn’s display-screen plant in Wisconsin ($4.8bn) and Apple’s data centre in Iowa ($214m) are typical. The Apple centre, a cloud computing facility, will have only 50 permanent jobs, so the cost per job exceeds $4.2m. The Foxconn deal, even by the state’s own official estimate, won’t break even for taxpayers for 25 years — an extremely risky time horizon given the likelihood of new technologies leapfrogging the company’s product much sooner. The Tesla deal was 14 times costlier than anything Nevada had done before.

The Seattle “Amazon Tax” that was supposed to fight homelessness was unanimously passed by the city council on May 14. But a few weeks later, the same elected officials yielded to the pressure of Amazon and repealed the measure. The Northern California cities like San Francisco or Mountain View and others who were considering such a mechanism are now thinking twice.

In a future Monday Note, we’ll look at the magic cure envisioned by the tech giants: the Universal Basic Income.

— frederic.filloux@mondaynote.com