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A year ago, Joe Biden, then the alleged Democratic presidential candidate, was fighting with Amazon over how little Uncle Sam was paid. Now Biden is president, and Amazon CEO Jeff Bezos is on a desert island supporting the White House plan – to raise corporate taxes.
Hardly any other company leader has spoken out in favor of Biden’s plan. But it’s a relatively simple plan that Bezos is leaving behind: his company pays nowhere near the current corporate tax rate of 21%, let alone the 28% rate that Biden is proposing.
According to company filings, Amazon’s 2020 income tax was $ 1.7 billion. That doesn’t mean the actual payments were that high – but that $ 1.7 billion tax figure still only made up about 7% of the pre-tax income of the $ 24.2 billion reported to investors. So Amazon only paid about a third of the 21%.
One of the few other executives advocating higher corporate tax rates is Lyft Co-Founder and President John Zimmer. But with Lyft (LYFT) still losing money, his company won’t pay corporate taxes in the years to come.
Amazon (AMZN) doesn’t do anything illegal or inappropriate – or unusual. Few companies pay 21% of their reported pre-tax profit in corporate tax. This is 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 size of the tax rate than they care about their ability to further reduce their taxable income,” said Matt Gardner, a senior fellow at the Institute on Taxation and Economic Policy (ITEP), a non-partisan think tank. “Of all the things the Biden government could try to get through, raising the corporate tax rate might be the one that does them the least harm.”
And that’s why those who advocate increasing the amounts paid by corporations say it’s important that any tax bill passed by Congress does more than just change the corporate tax rate. There needs to be an increase in how much income is taxable compared to what is protected from taxation.
“Increasing the tax rate would be a tragically incomplete way to fix that,” said Gardner.
Biden plans to hike corporate tax rate to pay his $ 2 trillion infrastructure bill. Bezos recently said it was the right time to make a major infrastructure investment and that Amazon “supports a corporate tax rate hike” to pay for it.
Amazon didn’t pay federal income tax until 2018, making it a preferred destination for those, including Biden, who argued that rich, profitable companies weren’t paying their fair share.
An analysis by ITEP shows that 55 large companies did not pay taxes for 2020, including Nike (NKE) and FedEx (FDX). It is said that there are 26 companies that have not paid taxes since the Trump Tax Act went 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 enacted the 21% rule. And the Congressional Joint Tax Committee found that US multinationals paid even less, on average: 7.8%.
“This beat-up on Amazon is a little over the top compared to what other companies are doing,” said Martin Sullivan, chief economist at Tax Analysts, a non-partisan, nonprofit publisher of tax news and commentary. “Other companies are shifting far more income to foreign tax havens. For me they are on the verge of the good. ”
The ongoing criticism is likely why Bezos supports higher rates, Gardner said.
“It signals that they are not completely deaf to the political situation,” he said.
Amazon’s lower federal tax bill is due to a number of tax breaks, none of which the company discloses.
It’s likely that the biggest breach was Amazon’s ability to instantly reduce its taxable income by a large portion of its capital expenditures. It also likely has some hiring interruptions depending on how many of its new hires came from disadvantaged backgrounds. In 2020, it added 500,000 employees worldwide as it expanded its network of distribution centers.
And tax breaks for research and development spending and money spent on green energy projects have probably helped, according to Amazon experts.
The company says the reduction in its tax burden is due to provisions of tax law that are good for the country and the economy.
“Our investments have increased the economy by $ 315 billion over the past decade, while we have created nearly a million US jobs,” the company said in a statement. “The US tax laws were designed to promote exactly what Amazon is doing to help the US economy move forward.”
Biden’s plan suggests scaling back some of the ways businesses cut their taxable income, although many of the disruptions that likely enabled Amazon to make 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 would have potentially more than doubled Amazon’s tax burden to $ 3.6 billion. In addition, there is a separate provision for levying a minimum tax on foreign corporate income.
Experts say the proposed minimum tax on total pre-tax income, regardless of the impact on Amazon, would not be the big source of additional tax revenue like other provisions of Biden’s plan.
“By increasing the statutory tax rate and closing loopholes that encourage profit shifting overseas, you have the greatest price for the money,” said Frank Clemente, executive director of Americans for Tax Fairness, a group promoting higher corporate taxes Collections.
However, Gardner said a minimum tax on reported pre-tax income is important because 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.