While Apple, Starbucks and other big companies are drawing scrutiny in Washington for their low tax rates and use of jurisdictions such as Ireland, New York's governor wants to woo businesses with a promise of no taxes for 10 years.
Andrew Cuomo has proposed tax-free zones centred on the state's public universities to attract jobs. Businesses that open near campuses would pay no corporate, property or sales taxes, and their owners and employees would be exempt from income taxes.
“By tax-free, I mean really, really tax-free,” Mr Cuomo said last week.
The plan comprises 120 million sq ft of space around dozens of State University of New York campuses and private colleges, all outside Manhattan.
Sluggish economy
It is Mr Cuomo's latest attempt to jump-start the sluggish upstate economy by encouraging tech sector growth.
Critics say the programme risks favouring some businesses and would undermine an already-weakened tax base in upstate New York – a broad swath that excludes the New York City metropolitan area.
Cities in the state’s north and west that were once manufacturing and transport hubs have seen businesses boarded up and workers leave.
Buffalo, for example, has lost more than half its population since its peak in 1950, when it was the nation’s leading industrial centre, largest inland port and 15th-largest city.
In the past decade, upstate job growth has run at 5 per cent, lagging behind New York City’s 16 per cent, the state’s 11 per cent and a national rate of 9 per cent, according to Economic Modeling Specialists, a labour-market data provider.
The plan will "help end the brain drain that's plagued our communities for years", said Brian Sampson, executive director of Unshackle Upstate, a business advocacy group.
New York has worked to develop a technology industry centred on its universities, including creating a $50 million venture capital fund. The tax-free initiative would help keep those businesses in the state, Mr Cuomo said, adding that three-quarters of tech start-ups leave within a year.
“If you just reduced the loss of jobs, that would be a home run. We create start-up businesses. Right now, we just can’t keep them,” Mr Cuomo said. “They get their legs under them, so to speak, then they leave for a lower-tax environment.”
New York faces competition from states such as Texas and Florida that do not have personal income taxes and where corporate levies are lower.
"Look at the trajectory of growth in the tech sector in Austin [Texas] compared to New York," Kathryn Wylde, president of the Partnership for New York City, a business lobbying group, said. "Austin's competitive pricing, quality of life and affordable housing allow them to attract a lot of companies that we would like to see growing in Brooklyn."
Although Mr Cuomo’s planned zones include five locations on Long Island and four in New York City’s outer boroughs, their focus is the upstate economy.
The proposal has drawn scepticism from both the right and left. EJ McMahon of the fiscally conservative Empire Centre for New York State Policy said in a recent blog that “the initiative is highly unlikely to generate growth on a game-changing scale”.
Ron Deutsch, of New Yorkers for Fiscal Fairness, a union-backed progressive group, warned that Mr Cuomo's plan was too similar to the state's now-defunct "empire zones", which offered incentives to businesses who moved into low-income neighbourhoods. That programme became associated with fraud and abuse by companies.
Picking up tab
Mr Deutsch also questioned how the communities would pay for services. "Fire, police, sanitation, sewers, roads and bridges, schools. Somebody's going to pick up the tab."
But Mr Cuomo said the increase in population from a revived economy would spur spending and bring in other revenue. – (Copyright The Financial Times Limited 2013)
