Will the GE move really make a difference?
Boston fought to get GE and won. The company has decided to move its headquarters here, which amounts to a big vote of confidence in the economic future of our region.
Ultimately, though, this victory seems mostly symbolic. A small, new headquarters is unlikely to lead to significant job growth or provide substantial tax money for the state.
Every month, Massachusetts creates about 6,000 new jobs. That’s seven times as many as GE is planning to bring to the state. And while you might hope that a company with billions in annual profits would boost state tax coffers, last year GE arranged its books so that it paid no state taxes at all — across the 50 states.
Won’t GE’s presence boost employment?
Corporate headquarters aren’t what they used to be. We’re not talking about a new GE complex, with manufacturing plants and research centers. GE abandoned that model years ago, when it left the company town of Pittsfield and started distributing its operations on a wider scale.
The only thing that’s moving in this case is the relatively small GE headquarters, affecting about 800 jobs or 0.3 percent of the total GE workforce. That’s just not big enough to matter in a city like Boston, with half a million people — or a state like Massachusetts, with 3.5 million jobs.
One caveat here is that there could be some spillover effects. A Boston headquarters might encourage GE to start using Boston firms for things like catering or legal services. Similarly, the relatively well-paid employees at the new headquarters will start spending money at local markets, restaurants, and other nearby businesses.
This influx of local spending could provide some economic lift, but with an office this small, it’s hard to gauge the size of the impact.
Will GE’s outsized profits translate into higher state tax revenue?
Almost certainly not. Depending on your point of view, GE is either a master of tax avoidance or a notorious tax dodger, with a record for paying remarkably low tax rates.
In 2014, the company earned $5.8 billion in US pretax profits. It paid less than 1 percent of that in federal taxes and no state taxes at all, according to Citizens for Tax Justice.
A new Boston office is unlikely to change that. Companies don’t pay taxes based on where they’re located. All that matters is where they book their profits. And when you have operations all around the world, like GE, you can organize your books to ensure that your profits get booked in the lowest-tax regions, minimizing — sometimes eliminating — any tax liability.
It’s even possible that Massachusetts will lose tax money on this deal. As an incentive to lure GE, the state promised over $100 million in tax relief and infrastructure support over the coming years, which is money that can’t be used for schools, road repairs, or any of the other things we do through state government.
Might GE’s decision encourage other companies to come?
Big companies often choose to set up shop next to peers, and for good reason. When you join a cluster of companies, you’re joining a business ecosystem, where there’s talent to poach, experienced consultants to hire, and other forms of corporate support at the ready.
For that reason, it’s possible that GE’s decision will set off a chain reaction, encouraging other large companies to come to Boston.
But this virtuous circle has a vicious side, too. Any company considering Boston will look at GE’s tax deal and try to cut its own. Worse, companies that are already here may start threatening to leave if they don’t get similar treatment.
More generally, though, it’s just not clear that luring corporate headquarters is a winning economic strategy. Compare Boston, which has relatively few headquarters, with Atlanta, which has successfully attracted a number of Fortune 500 companies in recent decades. Going back to 1990, incomes have grown 40 percent faster here in Boston. Since 2000, they’ve grown 80 percent faster.
Is there any reason for excitement?
There’s nothing wrong with celebrating a symbolic victory. The fact that a collection of the nation’s business leaders are eager to uproot their lives and move to Massachusetts is a testament to the vibrancy of the region. They wouldn’t come if they had grave doubts about the quality of our schools, the skill of our workers, or the future of our state.