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Arizona Governor Pulls Tax Breaks for Nike Over Canceled Shoe Line

Posted on July 3, 2019

Arizona Gov. Doug Ducey (R) has announced he is rescinding incentives offered to Nike Inc. in response to the company’s decision to cancel a line of shoes bearing a historic version of the U.S. flag.

Nike has made its decision, and now we’re making ours. I’ve ordered the Arizona Commerce Authority to withdraw all financial incentive dollars under their discretion that the State was providing for the company to locate here,” Ducey said in a July 2 tweet. “Arizona’s economy is doing just fine without Nike. We don’t need to suck up to companies that consciously denigrate our nation’s history.”

In a July 2 email to Tax Notes, Susan Marie of the commerce authority said that as a result of Ducey’s order, “we are withdrawing an up to $1 million grant offer from the . . . Arizona Competes Fund.” That fund is used to offer incentives to companies that relocate, expand, or remain in the state. The grant in question was to be awarded in relation to Nike’s plan to open a facility in Goodyear that would create roughly 500 manufacturing jobs.

“Today was supposed to be a good day in Arizona, with the announcement of a major @Nike investment in Goodyear, AZ,” Ducey tweeted. “Instead of celebrating American history the week of our nation’s independence, Nike has apparently decided that Betsy Ross is unworthy, and has bowed to the current onslaught of political correctness and historical revisionism.”

Ducey was responding to a July 1 Wall Street Journal report that Nike had decided to cancel a line of shoes bearing a depiction of the so-called Betsy Ross flag — a late 18th century version of the U.S. flag that features a circle of stars representing the original 13 U.S. states — at the urging of former NFL player Colin Kaepernick, who has an endorsement deal with Nike. Popular legend attributes the final design of the flag featured on the canceled shoes — in particular, the decision to use five-pointed stars — to Philadelphia upholsterer Betsy Ross, who is also claimed to have sewn the first such flag, although historians have debated the accuracy of the story. The release of the shoes was timed to coincide with the July 4 holiday.

According to The Wall Street Journal, “Nike Inc. is yanking a U.S.A.-themed sneaker featuring an early American flag after NFL star-turned-activist Colin Kaepernick told the company it shouldn’t sell a shoe with a symbol that he and others consider offensive, according to people familiar with the matter.” Kaepernick famously initiated the trend of NFL players kneeling during the national anthem to protest police violence against African Americans. According to the Journal, sources said he argued that the flag is associated with the institution of slavery.

Nike didn’t return a request for comment by press time, and it’s unclear if Ducey's move will affect the company’s decision to open a plant in Goodyear. Notably, the city had also agreed July 1 to provide its own incentives to the company.

“Last night, the Goodyear City Council unanimously approved a job creation agreement with Nike,” said Goodyear Mayor Georgia Lord in a July 2 press statement. Lord, who acknowledged the “difficult situation,” pledged that “we will honor the commitment we made in our agreement.”

The situation in Arizona “reveals one more complication with using the tax code to choose winners and losers,” said Michael Lucci of the Tax Foundation, a critic of the use of state incentive deals. “What we’re seeing here” is the potential for “cultural disputes to affect tax incentives.”

Lucci noted that the situation echoed a recent episode in which players in the entertainment industry threatened to boycott Georgia — which has sunk a significant amount of taxpayer dollars into incentives for film and television production — in response to a recently passed law to severely restrict abortions in the state.

The risk of politicizing incentive deals over cultural issues “underscores why it’s a positive thing to . . . just have a friendly tax environment with broad tax bases and low tax rates,” Lucci said.

However, Greg LeRoy of economic development incentives watchdog Good Jobs First said the situation in Arizona is likely just a flash-in-the-pan controversy. “It’s a silly episode,” he said, comparing it to a 1993 incident in which Williamson County, Texas, rescinded tax breaks it provided to Apple in response to the company’s decision to provide health benefits to gay couples. The county later approved new tax breaks that essentially replaced those it had withdrawn.

“It strikes me as that. It’s culture wars,” LeRoy said. “This is not the huge turning point that Amazon HQ2 was,” he added, referring to the public scrutiny of economic development incentives that resulted from state and local governments’ efforts to become the location of Amazon’s second headquarters through a competition to offer the company tax breaks. 

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