Netflix made report income in 2020 and paid a tax price of lower than 1 p.c – ITEP

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Pandemic Profits: Netflix Made Record Profits in 2020, Paid a Tax Rate of Less than 1 Percent

In the early days of the COVID-19 health and economic crisis, it quickly became clear that consumers would drastically change the way they buy goods and services, and that certain companies – including major tax evaders – would benefit immensely.

So it’s no wonder that streaming giant Netflix’s U.S. income rose from $ 1.7 billion in 2019 to $ 2.8 billion in 2020 as people turned to the internet for more entertainment. It is also not surprising that the tax avoiding company has not changed its behavior.

Netflix’s “current” federal income tax for 2020 was $ 24 million, which is just 0.9 percent of the company’s pre-tax income for the year. This is another way of saying that Netflix paid an effective income tax rate of just 0.9 percent in 2020. If the company paid the 21 percent statutory tax rate, its tax charge would be $ 572 million.

Two years ago, Netflix aroused the ire of many Americans – including Senator Bernie Sanders – when it announced it would pay no federal tax on US $ 845 million income. The company made a half-hearted, easily refutable rejection. Based on its most recent accounting, Netflix had U.S. income of $ 5.3 billion in the first three years of the Trump GOP Tax Act 2017 and paid an effective federal tax rate of just 0.4 percent.

That profitable companies can avoid billions or hundreds of millions in federal taxes year after year should compel policymakers on both sides of the aisle to work towards a solution.

The stock market quickly bounced back from its March 2020 losses and the elite, wealthy beneficiaries of record profits and soaring stock valuations, are thriving. On the other hand, millions of people face housing and food insecurity. Today ten million people are less employed than a year ago. Congress is debating the merits of a $ 1.9 trillion bailout package that rightly focuses on the economic needs of the common people, but periodic deficit hawks ponder – predictably – how much the national debt package will pay will contribute. In particular, the lead complainants had no concerns about passing a tax cut of US $ 2 trillion in 2017, which will continue to benefit businesses and the rich in particular.

Most economists agree that deficit spending is an adequate response to the current economic crisis. But Congress can both legislate to meet the immediate needs of the common people and advance tax policies to fill gaps that allow profitable companies like Netflix to dodge taxes on an incredible scale, regardless of economic conditions.

For every record Netflix profit for the past year, there will surely be dozens of large retail or service companies reporting that they have not paid income tax because they were rightly exposed to catastrophic pre-tax losses in a pandemic year. Because of this, it is important that companies in thriving sectors like technology and pharmaceuticals that increase their market share pay something that approaches the statutory tax rate.

Tax law allows next to nothing to create effective corporate tax rates

There is no reason to view Netflix’s tax avoidance as anything other than the normal way corporate tax laws work. One of the mechanisms Netflix uses to get its tax bill back next to nothing accelerated depreciation (which appears to have reduced the company’s tax expense by $ 148 million); Deductions for stock options for Netflix executives and other employees ($ 339 million); and Research and development tax credits ($ 113 million).

Tax breaks that Netflix has used are not politically justified. For example, a 2019 ITEP report outlines how accelerated tax breaks on depreciation do not stimulate capital investment or economic growth as proponents have claimed. In addition, the current tax treatment of stock options is far too generous for executives.

As for the research tax credit, reasonable people may wonder if the nation should subsidize (by tax code) whatever “research” Netflix claims. A report by Citizens for Tax Justice argues that research tax credit has a long and checkered history of subsidizing research of questionable value.

Netflix’s tax avoidance is perfectly legal, but it shouldn’t be. Congressional tax clerks had a valuable opportunity to delve into each of these tax regulations three years ago when then-President Donald Trump prioritized lowering the corporate tax rate but the 500-page cocktail napkin legislators either departed in the final days of 2017 These fractions are intact or have greatly expanded in the event of a write-off.

A policy solution

President Biden has not yet proposed removing these tax breaks, but he has proposed a second-best solution– –Corporations are required to pay a minimum tax of 15 percent on profits they report to shareholders and the general public if that is less than what they pay under regular corporate tax rules. This would be a big improvement as, after all, all businesses would have to at least contribute to supporting the society that makes their profits possible.

The stakes for our tax system and for the public investment that corporate income tax finances are higher than ever. If the world’s Netflixes don’t pay their fair share in these troubled times, who will?