Amazon is a verysophisticated tax player.
Amazon is very much thecanary in the coal mine.
They’re really doing what a lotof politicians wish more companies would do.
Amazon is a huge company, but youknow just how huge it really is.
We start with amazing Amazon somewhereCEO Jeff Bezos is smiling.
It’s one of only two U.
companies to ever reacha trillion dollar valuation.
No one in history hasbecome as rich as quickly.
It’s made Jeff Bezos therichest man in the world.
That is one hundredmillion prime subscribers globally.
And if you put those prime subscribers inone country, it would be the 14th largest on the planet.
But that massive company paid no federalincome tax on more than 11 billion in profits in 2018.
And somehow they actually got a$129 million tax rebate.
So how do they do it? First, there is the tax bill.
President Trump’s signature tax legislationlowered the corporate tax rate from 35 to 21 percent.
Corporations are literally goingwild over this.
That immediately slashed Amazon’spotential tax burden.
Then there’s Amazon savvyuse of revenue.
Amazon plows large portions of revenueback into itself to cultivate long term growth.
Amazon has actually been selfsfunding for several years now.
The company challenged significantfree cash flow.
One of the things I like about Amazonis it’s a company that doesn’t really kind of rest on their laurelsand is constantly trying to innovate, constantly trying to heed theneeds of the customer.
This started early on with Bezos usingthe strategy to get big fast helping Amazon eclipse its once archrival, Barnes & Noble.
Since then, it’s helped Amazon gobbleup countless other retail markets as well, embark on lucrative ventures likeAmazon Web Services, and even become a Hollywood studio withshows like “The Marvelous Mrs.
Maisel” and “Jack Ryan.
” Amazon has invested so much revenuein itself over the years that sometimes it didn’t evenmake a profit.
And when that happened, it could carryforward losses to write off on future tax bills.
In 2018, those carryforward losses eligiblefor federal write off amounted to $627 million.
Then there’s massive federal tax credits, which the company reports are primarily related to research anddevelopment from its A.
I assisted logistics network to itssuite of consumer electronics products Amazon has poured tens of billionsof dollars into research and development over the years.
But that’s not the onlytax credit Amazon qualifies for.
The big one last year was theexpensing that is allowed for investments in plants and equipment and buildingsand things of that sort.
Trump’s Tax Cuts and Jobs Act superchargedthis credit, a perk that Amazon has cashed in on.
The idea behind the expanded credit.
The big problem the U.
economy is that it has not beenas productive recently as in the past.
And so one solution which would helpsort of companies everywhere is if they invested more in machinery andtraining to make their workers more productive.
But not everybody buysinto this reasoning.
The tax breaks Amazon is getting, they’rebeing rewarded for what they were going to do anyway.
Because when you’re a company assuccessful, as profitable, as cash rich as Amazon is, you make investments when youhave the money to do them and when you see theneed for those investments.
In 2018, Amazon had about one pointfour billion dollars in total available tax credits.
Finally, there’s the company’s useof stock based employee compensation.
Basically, this allows Amazon to payemployees using stock and then take the value of that stockoff their tax bill.
Amazon rewards its employees, especiallyits executives, with stock based compensation, and Amazon stock hasbeen rising fairly substantially for many years.
And so the size of that stockbased compensation is now very large and affords Amazon a large write off.
Some say the federal government ends up makingjust as much in the long run from stock based compensation because thestock is taxed when it’s sold.
But others have concerns because ofthe major difference between the value of the stock when it’s offered toemployees versus the value when it’s written off.
They give executives the right to purchasea certain number of shares of stock at a set price.
The price of the stock goes way up.
The company is then allowed to writeoff the value of that stock and suddenly the tax breaks can be huge.
Amazon deducted about one point onebillion dollars from its tax liability using this method in 2018.
So that’s how Amazon secures sucha small federal income tax bill.
But before we get ahead ofourselves, we should probably remember that Amazon does pay certain taxes likestate taxes, local taxes, other federal taxes and international taxes.
In a statement to CNBC, an Amazonspokesperson said, Amazon pays all the taxes we are required topay in the U.
and every country where we operate, including paying 2.
6 billion in corporate tax and reporting 3.
4 billion in tax expense over the last three years.
The company also touted its investmentsand job creation in the U.
But according to data compiled bythe Institute on Taxation and Economic Policy, Amazon had an effective federal taxrate of just 3 percent over 10 years.
That’s far below the once 35percent corporate income tax rate in the United States and even thenew 21 percent rate now.
And Amazon’s story isnot exactly unique.
Another disruptor Netflix and even amore traditional auto company General Motors both report expected net federalincome tax benefits in their 2018 annual filings.
When we asked Netflix about it, thecompany highlighted the 131 million it paid in taxes total but wouldn’tbreak out its federal bill.
It all seems to be part of alarger trend over the past 70 years, we’ve seen a decline in corporate income taxrevenue as a share of the larger economy and in the last decade.
Companies as diverse as Southwest and GoldmanSachs, just to name a few, have all had at least a year wherethey reported net tax benefits in their S.
filings, but could loweringAmerica’s corporate tax rate actually make it more competitive forcompanies to do business here? I think what a lot of economists wouldsay is that the corporate tax is a very bad tax.
One you have sort of aglobal economy where economic activity is everywhere.
You have other countriescutting their tax rates.
You want to sort of incentivize economicactivity to be in your country.
What do you wantthese companies to do? You want them toinvest in new machinery.
Want them to invest in their workers.
You want them to have more profits, which then they can use to invest more.
That’s what youwant corporations to do.
You don’t want corporations necessarily bepaying lots of taxes that’s not what they’re there for.
Others say it deprives the country ofmuch needed tax revenue without a lot of benefit.
We may yet succeed in this experimentof lowering our effective tax rates and our statutory tax rates todraw more business to the US.
But so far, we’re not seeing the typeof level of growth in business and investment that would make up for thelost revenue when we lowered our tax rates from 35 to 21.
So yeah, it’s an issuebecause we need the money.
As of 2017, the U.
has corporate tax revenue as a shareof the larger economy was lower than most other peer nations ranking belowItaly, South Korea and Mexico.
We’re in a lot of trouble.
We’re facing one trillion dollar deficits asfar as the eye can see.
Ultimately, this means everyone else hasto pick up the slack.
That two billion dollars Amazon is notpaying will have to get paid by smaller businesses that don’t have thewherewithal to lobby for tax breaks.
It’ll get paid by middle incomefamilies in the form of higher taxes in some way.
The reality is this is howbusiness has been done for years.
Corporations with savvy lobbyists on theirpayroll have found ways to convince politicians in both parties toleave loopholes in the tax code.
So I’m a tax lawyer and I draftedtax rules for Congress for six years.
Multinationals have a very strongpresence on the Hill.
When I was there, we would meetevery week with companies and their lobbyists.
And I thinkthe interest is disproportionate.
I mean, every American, including everyAmerican company, has a right to petition Congress and to sharetheir concerns with Congress.
The trouble is, sometimes of those withthe most resources have the loudest voice.
But business as usual may be changingas average Americans have begun to wonder whether this bargainreally benefits them.
It’s a question that came front andcenter during Amazon’s hunt for a second headquarters.
Amazon has made it official.
The online giant announced it’s splittingits new headquarters into two locations Crystal City in Northern Virginia andLong Island City in Queens.
The company courted massive interestfrom hundreds of cities.
Amazon today saying they are bringing atleast 25, 000 jobs with an average salary of $150, 000.
New York’s governor, a mayor, sayingthe $3 billion dollars in tax incentives they gave Amazon for an expected 27.
5 billion in tax revenue would pay off big for New Yorkers.
That is the highest rate of return for an economic incentive program that this state has ever offered.
This certainly consolidates New York Cityas a great international tech hub.
Despite positive polling on the deal, a groundswell of New Yorkers vehemently disagreeing.
Whose city? Our City!Whose City? Our City! We want to make sure that they knowthat this community is going to stand up and fight against this deal.
Any politician in this progressive city anda state who’s willing to hand out three billion dollars to Amazon, thereshould be a career ender right there.
And soon it all came crashing down.
Breaking news, Amazon cancelingits controversial plans Now it will not builda headquarters in New York The world’s biggest company just got sent packing thanks to an unfriendly welcome by New Yorkers Has the populist victory in theHQ to fight change the game? I mean, it shows that everyday Americanscan have more say in this country than the richest man in the world.
Will it ignite a grassroots movementdemanding that loopholes be tightened and the effective tax rate be raised allthe way up to the federal level? We should not have a regressivetax system in which large profitable corporations like Amazon pay nothingin federal income taxes.
Or is it just a flash in the pan? As even President Trump, a frequent criticof Amazon, came to the deal’s defense? Well, I think it’s aloss for New York City.
And the $3 billiondollars wasn’t a check.
It was a form of taxes over aperiod of time that now they’ll never see.
Only time will tell.
But one thing is for sure, it’squite normal for some corporations to pay no income tax to the federal government.
Is that a normal you’re satisfied with?.