A year ago, Joe Biden, then the alleged Democratic presidential candidate, argued with Amazon over how little it had paid Uncle Sam. Now Biden is president, and Amazon CEO Jeff Bezos is on a deserted island supporting the White House’s plan to hike corporate taxes.
Hardly any other company manager has spoken out in favor of Biden’s plan. But it’s a relatively straightforward plan for Bezos to catch up: his company pays nowhere near the current corporate tax rate of 21%, let alone the 28% rate that Biden is proposing.
According to the company, Amazon’s income tax bill in 2020 was $ 1.7 billion. That doesn’t mean the actual payments were that high – but the $ 1.7 billion tax figure was still only about 7% of Amazon’s pre-tax income, the $ 24.2 billion it reported to investors. Thus, Amazon only paid about a third of the 21% rate.
One of the few other executives who advocate higher corporate tax rates is Lyft Co-Founder and President John Zimmer. But with Lyft still losing money, his company won’t pay corporate taxes in the years to come.
The real tax rates paid by companies
Amazon doesn’t do anything illegal or inappropriate – or unusual. Few companies pay 21% of their reported pre-tax income in corporate tax. That’s because there are many ways to reduce the amount of taxable income that is subject to this tax rate.
“They care much less about the tax rate than they care about their ability to further reduce their taxable income,” said Matt Gardner, a senior fellow at the Institute of Taxes and Economic Policy (ITEP), a non-partisan think tank. “Of all the things the Biden government could do, a corporate tax rate hike might be the one that hurts the least.”
And that’s why those who advocate increasing the amount paid by corporations say it’s important that any tax bill passed by Congress changes more than just the corporate tax rate. We need to increase how much income is taxable and how much is tax protected.
“Increasing the tax rate would be a tragically incomplete way to fix this,” said Gardner.
Biden plans to raise the corporate tax rate to pay off his $ 2 trillion infrastructure legislation. Bezos recently said the time is right for a major infrastructure investment and that Amazon “is backing a corporate tax rate increase” to help pay.
Amazon didn’t pay federal income tax until 2018, making it a preferred destination for those, including Biden, who argued that rich, profitable companies aren’t paying their fair share.
An analysis by ITEP shows that 55 large companies, including Nike and FedEx, did not pay taxes for 2020. There have been 26 companies that have not paid taxes since the Trump Tax Act came into effect in 2018.
ITEP analysis also shows that the average effective corporate tax rate paid by profitable Fortune 500 companies was only 11.3% in 2018, the year Trump passed the 21% rule. And the Joint Tax Committee of Congress found that US multinational corporations paid even less, on average: 7.8%.
“This brawl at Amazon is a bit of an exaggeration compared to other companies,” said Martin Sullivan, chief economist at Tax Analysts, a non-partisan, nonprofit publisher of news and commentary on tax law. “Other companies are shifting far more income to overseas tax havens. For me, they’re on the verge of good.”
The ongoing criticism likely sparked Bezos’ support for higher rates, Gardner said.
“It signals that they are not completely deaf to the political situation,” he said.
Amazon defends its tax bill
Amazon’s lower tax burden comes from a number of tax breaks, none of which are disclosed by the company.
It is likely that the most important breach was Amazon’s ability to instantly cut its taxable income by much of its investments. There were also likely some hiring breaks depending on how many of his new employees were from disadvantaged backgrounds. In 2020, 500,000 employees were added worldwide when the network of distribution centers was expanded.
And tax breaks for research and development spending and money for green energy projects likely helped Amazon too, according to experts.
The company says the reduction in its tax burden is due to tax regulations that are good for the country and the economy.
“Our investments have added $ 315 billion to the economy over the past decade while creating nearly a million jobs in the US,” the company said in a statement. “US tax laws should promote exactly what Amazon is doing to help the US economy grow.”
Biden’s plan is to cut some of the ways businesses cut their taxable income, though many of the breaks that are likely to have brought Amazon significant savings would not be at risk.
Under government plans, Amazon’s taxes could see the biggest increase over the proposal to impose a minimum 15% tax on the amount of money the company reports as pre-tax income. That could have potentially more than doubled Amazon’s tax burden to $ 3.6 billion. There is also a separate provision according to which a minimum tax should be levied on the foreign income of companies.
Experts say that regardless of the impact on Amazon, the proposed minimum tax on total pre-tax income would not be the big source of additional tax revenue like other provisions of Biden’s plan.
“Increasing the statutory tax rate and closing the gaps that lead to profit shifting overseas have the greatest benefit,” said Frank Clemente, executive director of Americans for Tax Fairness, a group advocating higher corporate tax collections.
According to Gardner, a minimum tax on reported pre-tax revenue is important as it encourages a sense of fairness and prevents companies from avoiding higher taxes by protecting all of their income.
“It should be obvious that 21% of nothing is pretty much the same as 28% of nothing,” Gardner said.