With Apologies to AOC, the Congresswoman Got This One Wrong
By Laurence Sotsky
Congresswoman Alexandria Ocasio-Cortez’s rebuke of misogyny and gender discrimination exemplifies her brilliance as a thinker and speaker in addition to her strength and grace - I very much believe her to be a model American to be emulated by boys, girls, men, and women alike. She is an example of what makes America special.
I do, however, believe that she is wrong when it comes to one critical area of the American economic landscape. I would like to respectfully outline this error as I have seen it to be one made quite commonly and to the great detriment of the American people. I would also welcome the opportunity to have this conversation directly with the great congresswoman as I believe she will eventually be converted from an adversary to a champion in this critical and complicated fight.
I would begin with a link to AOC (I use this acronym not as a personal diminishment but rather as a simple shorthand) discussing the life saving HIV medication, Truvada last year:
https://twitter.com/Public_Citizen/status/1277982392192360450
In that address, AOC expertly makes the argument we hear so often. To paraphrase:
Gilead (the producer of Truvada, and more to the point of our current circumstance, Remdesivir) created the drug Truvada through taxpayer support, enjoys the support of taxpayer funded protection in a patent, yet extorts the American people to the tune of a nearly $2,000 price tag for Truvada as compared with the Australian people who have access to it for a mere $8.
This argument amounts to a deep accusation approximating a combination of murder and extortion. And it seems salient at first blush - Truvada was created through the application of the Federal R&D Credit and it does indeed cost $2,000ish in the US and only $8 in Australia. It does indeed save lives. Ergo, AOC seems to be correct in her accusation.
Unfortunately, this is not the whole story. And as is so often the case with major elements missing from the story, the conclusion reached is incorrect and, in many ways, inadvertently dangerous. And as the story of Gilead’s pricing tactics now extends to the world’s only tried and true therapeutic in the battle against Covid in Remdesivir, it becomes even more critical for a public understanding into what Tax Credits & Incentives are (C&I), where they came from, why they work, and why they are so important for the US and the world now more than ever.
The Federal R&D Credit is part of a class of economic stimulus called Tax Credits & Incentives (C&I). C&I are issued to people or companies by government bodies generally as a special tax offset in exchange for certain activity. As an individual, we are very familiar with C&I in the form of mortgage based or child based offsets. C&I has existed as long as taxes have in a rudimentary fashion however special enterprise C&I began to rise dramatically in utility and importance for very large companies during the 1970s as globalization merged with technology to make internationalization much more appealing. Take this fictitious example:
Company A has its Headquarters in Mississippi. It has been there for 30 years but Company A has released a new successful product and now needs an HQ with twice the size. Naturally, it starts looking for nearby land to buildout when an intrepid financial planner presents what was once a crazy idea: what if Company A moved HQ to Southeast Asia? At a cost representing 10% the budget needed for the Mississippi HQ2 (yes that phrase is used intentionally as a callback to the infamous Amazon HQ2 project which also involved AOC and C&I,) Company A could save millions in a move. As a public corporation, Company A is mandated to act in the best interest of its shareholders and so it decides to move overseas. Mississippi though, sees this unfolding and while it is unable to simply give Company A the millions in liquid cash it would need to keep its HQ, and thousands of jobs which come with billions in local salaries, stateside - what it can do is create a C&I package. Mississippi pitches to Company A and says that if it does stay in Mississippi, and that it does grow in staffing in keeping with its projections, that it will provide Company A with a tax abatement (offset) which corresponds to the savings they would have achieved if they had moved to Southeast Asia. Company A is thrilled because they wanted to stay in the US but had to be financially intelligent, and they reach a deal to remain. Mississippi keeps the thousands of jobs without having to issue a bond or take out a loan, and Company A has made a smart financial move.
It is important to note here that C&I is not “corporate welfare.” Welfare inherently requires recipients to maintain a certain level of need while C&I requires recipients to maintain a certain level of achievement. To move from the fictitious to the actual, Amazon HQ2 which was famously derailed by AOC and other colleagues from NYC did eventually land in Virginia. The first instance of Virginia providing major financial benefit to Amazon is scheduled for 2030 when, if Amazon is able to demonstrate that it successfully hired and maintains a staff of at least 25,000 people making a minimum of $150,000 working at the Virginia Amazon HQ2, they will receive approximately $500M. That math looks like this then
HQ2 staff = 25,000 x $150,000 = $3,750,000,000 in local annually recurring revenue for Virginia
Amazon then receives $500,000,000 in a one time financial benefit
That is a massive win for Virginia. That local revenue goes back into the tax base, into homes, into local business and moreover, that local revenue supports thousands upon thousands of human lives and families which go onto define the culture and actual society. And if Amazon fails to meet the hiring criteria, then it will not receive the monetized value of the C&I.
Of course, Amazon is owned and led by Jeff Bezos who is worth somewhere around $200,000,000,000 as an individual. I don’t want to be presumptuous, but I think his individual wealth is really the underlying objection to C&I - how can an organization with one person so wealthy really need another $500M of taxpayer money? Let’s set aside the reality that it isn’t often actual taxpayer money so much as it is offset (and then by way of the resulting local salaries, really more of a redirect) and approach that central question:
Why does Jeff Bezos need more help?
Answer: He doesn’t.
And moreover, it is a grotesque reality that millions of children are born into poverty while a few people with unfathomable wealth can live so ostentatiously on Earth. Inequality is one of the central problems not only of our time but of human civilization itself. I don’t think there is any sensible thinker who fails to see at least some problem here.
But that’s not the problem with C&I. C&I is intended to combat the effects of globalization as well as the difficult nature of commercial scale innovation. The Solar Industry for example, was essentially created through Obama led C&I (https://www.seia.org/initiatives/solar-investment-tax-credit-itc. Likewise, medication and biotech often requires 5 to 10 years of costly research before they can be converted into a commercially viable medication. Don’t let the phrase “commercially viable” raise your rankles either - commercially viable really means “at scale.” Western Governments rarely have the capital infrastructure needed to create things at a scale proportionate to their population.
Globalization and technology has created many wonderful things but it has also revealed some of the problems resulting from 30,000 years of humans having previously been remanded to geography. We don’t really have an international body capable of evening out the inequities developed over that 30,000 years which took us from tribes to formalized countries fraught with specific problems yet imbued with specific resources.
Discouraging C&I or holding Gilead accountable for the problems of globalization fails to structure its argument around what should be the absolute center of thought here:
Truvada works. Remdesivir works. Amazon HQ2 is humming and the area of NYC where HQ2 was initially slated to be is without that activity. That is not a slight against AOC either - when you think the story is as simple as 1) Taxpayers paid for X; 2) Super duper rich guy makes all the money; 3) There are a lot of poor people - then absolutely you should protest! That’s not this story though, this story is that C&I worked in successfully weaponizing the machinery of large organization at the behest of government, and thus societal, needs. This story is the extraordinary number of good jobs which are prerequisites to the monetization of the value of the C&I itself (and there are plenty of C&I out there which don’t monetize.) This story is that Remdesivir works and is saving lives.
The world is so dramatically different today than it was 10 years ago, much less 50. The very nature of nations has shifted and is continuing to shift. C&I is a critical asset not in the driving of hyper inequality but in the mitigating of globalization on destabilization particularly in the more wealthy, higher cost of living countries. If ever there was a time for an asset which puts use to existing corporate machinery at the behest of the greater public without the need for government liquidity - now is that very time!
What AOC is doing is incorrectly assigning blame for a larger story on Gilead and on Amazon HQ2. It is guilt by association rather than causality. There actually is a real argument for the cost of certain drugs which is tethered to hospital offset days (roughly: if a drug mitigates the average stay at a hospital of say 5 days and those 5 days would have cost $15,000 then the cost of the medicine is placed in keeping with that hospital offset.) And if C&I is so discouraged that states begin to pull back, the innovation and jobs associated with them at best will go overseas, and at worst, will simply disappear.
Congresswoman, if you do happen to have read this I want to again say that I 100% respect you and love the voice you have become in the US and greater world. On this particular issue though, I would invite you to consider an angle which is a little more nuanced. Your greater issue of income inequality is extraordinarily important but on the particular issue of C&I and its role in invalidating profit models and revealing genocidal corruption, I would suggest that you might be cutting off your nose to spite your face, as it were.
For those of us who do, then, acknowledge both the great ethical power of leaders like AOC as well as the economic and social underpinnings of the changing world, it is imperative that we drive a new conversation regarding economic stimulus such as C&I. One where we at once maintain the moral clarity inherent to inequality issues while simultaneously investigating with nuance macro economic policy which does not reflexively attack corporations, even those with very wealthy owners. We live in a world arrived at after many thousands of years of society - it is clearly imperfect. In our pursuit of a more equal and perfect world, we must be careful to avoid falling victim to blanket aspersions and oversimplified economic practice. Corporations and government should be proud of their successful C&I covenants as they embody the public-private alignment such that real communities survive and prosper. Here’s a shorthand trick for any interested reader: anytime you come across a story of righteous indignation hinging on some derivation of the phrase “taxpayer funded” look a little deeper - are they taking about C&I? If so, look up what the specifics of the C&I package are. Understand what sort of benefit the corporation stands to receive (whether it is an abatement or a cash grant) and what the achievement triggers are (do they need to hire a certain number of people or remediate a certain environmental spill?) Don’t fall victim to the easy story - look deeper and see that there are a lot of smart, ethical people out there fighting for a better future through sound macro-economic policy such as C&I.