Grocery Goodies

Big grocers want what Amazon gets — and that's bad news for taxpayers.

Photo credit: Eddie Welker

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Before the holiday break, Michigan’s legislature approved new measures to benefit Meijer, a major grocery store chain headquartered in the state. The bills would have removed sales, use, and property taxes from automation equipment that Meijer employs in its warehouses. Though written broadly, the tax break would only, as of now, have benefitted the one company.

On Monday, Michigan Gov. Gretchen Whitmer pocket vetoed the bills; she had previously said she didn’t like that the state’s budget analysts couldn’t put a number on how much the tax breaks would cost in lost revenue. Local officials, particularly those representing schools, said the same thing, since Michigan’s sales tax, in part, goes into a school aid fund.

The interesting aspect of this debate, though, isn’t actually budget-related. It’s the motivation lawmakers expressed for providing the tax break in the first place: They wanted to put Meijer, one of the largest grocers in America, on an even playing field with Amazon.

Amazon, since it is considered an industrial company under Michigan law, rather than a retailer like Meijer, already has tax exemptions for the sort of automation equipment Meijer also uses. "As a Michigan-based company that continues to invest heavily in our home state, we are simply asking for a level of parity for Michigan businesses (when it comes to incentives and flexibility) that has been provided to out-of-state companies in the warehousing and manufacturing space," said a Meijer spokesperson. Another major grocer in the area, Kroger, also receives an exemption due to its Michigan warehouse being located in a specific tax-benefit zone.

As readers of this newsletter well know, the massive subsidization of Amazon at the state and local level — to the tune of at least $3.7 billion — causes all sorts of economic problems, including giving Amazon a leg up over other local businesses. Now we have state lawmakers in Michigan trying to even things up, not by making Amazon pay more, but by giving tax breaks to Amazon’s larger competitors too.

This also fits the pattern of local governments helping dominant corporations build out their distribution and warehousing systems. Those subsidies give bigger companies an advantage over smaller retailers who don’t receive the same benefits, and who then wind up paying Amazon to handle distribution for them, often under coercion from Amazon itself. (Yes, this all goes in quite a few circles.) It also makes sense that major grocers are concerned about Amazon and whatever it is Jeff Bezos is trying to do with Amazon’s purchase of Whole Foods, and are lobbying lawmakers accordingly.

The way to prevent Amazon from burying other local companies, even large ones, though, is not to try to provide benefits to select others in the hopes that doing so will enable them to keep up, but to remove whatever policies are giving Amazon an advantage in the first place.

In just the last few years, Amazon has received at least $48 million in state and local subsidies in Michigan. Turning off that spigot is the right place to start. Doing what Michigan lawmakers attempted to do merely results in a race to the bottom in which Michiganders ultimately suffer via reduced benefits and having local economies dominated by a few large firms.

One more troubling aspect of this is that the automation equipment Meijer is using — and that state lawmakers wanted to subsidize — is pretty explicitly designed to destroy jobs, which advocates of the tax breaks admitted, but didn’t seem bothered by. Even local unions were backing the measure, so long as their members received jobs servicing the machines. Helping large corporations find ways to do more with fewer workers is not a task the government should be involved in.

States and the federal government have, for a long time, tried to use tax breaks to entice grocers to open in underserved areas, known as food deserts. As I explained here, that approach fundamentally misunderstands the problem of food inequality, which is that low-income people don’t have enough money to buy the food they want and need.

Efforts like Michigan’s (or Ohio’s recent move to aid Krogers) are even more problematic, as they’re not even aimed at helping a particular population, just boosting already dominant corporations in the hopes they stave off even more dominant corporations. Building a Frankenstein’s monster to take on the existing monsters that bad policy created, though, doesn't do the local population any good. Whitmer did the right thing by vetoing; hopefully other politicians follow her lead.

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ONE MORE THING: I explained in my book how Atlantic City has attempted to prop up its economy with tax breaks for casinos, even though the city’s problem is that it depends on gambling at a time when gambling has been legalized all across the country, obviating the need for many people to travel long distances in order to wager. Well, Atlantic City has a new plan: A casino — with a publicly-subsidized waterpark attached!

Much like Nashville’s convention center waterpark boondoggle, let’s just say I’m skeptical this will turn out to be an effective economic development strategy.

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— Pat Garofalo