How do you book record profits and still pay no federal taxes? The tax wonk who discovered that Amazon has done this two years in a row worries that "the great disruptor" may be starting to destabilize democracy itself.
Last week I suggested that Amazon isn’t so much a Seattle company as a “sovereign, borderless nation-state.” It turns out I left a key descriptor out of that phrase.
That would be “taxless.”
This past week, ironically just before Amazon broke up with New York due to that city’s annoying doubts about why it was giving the company billions in tax breaks, a tax wonk was poring through Amazon’s 2018 financial statements and made what he calls a “garish” finding.
The nation’s third-largest company booked record profits last year. But paid nothing in U.S. federal taxes.
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“Zero, as in not a cent,” says Matthew Gardner, of the Institute on Taxation and Economic Policy, a D.C.-based think tank.
Amazon did pay taxes to state and foreign governments (more on that in a minute). But the financial statements mean that one of the most powerful corporate entities in the world paid fewer dollars to the upkeep of the national government than tens of millions of individuals — such as, say, your average lowly newspaper columnist.
That’s right – I’m paying more to the U.S. government for 2018 than Amazon (I’m talking about the corporate entity, not its mass of employees). So, probably, are you.
Gardner says the internet giant was able to zero out its bill — actually go below zero, as it qualified for a rebate of $129 million — in large part due to Congress and President Donald Trump’s year-old tax-cut law.
“That law didn’t reform much of anything; it was simply to slash taxes,” Gardner said. “So it isn’t surprising this is happening. Cutting corporate taxes was the whole point.”
All the way to nothing?
The company also got a series of tax credits (for equipment purchases, for example) and booked allowable business deductions (the largest of which was writing off stock options).
Businesses often pay little or no tax when they make low profits. But Amazon’s total U.S.-booked profit for 2018 nearly doubled to more than $11 billion.
Gardner isn’t saying Amazon did anything wrong, and of course its hundreds of thousands of employees pay income taxes. But last year total corporate taxes paid to the U.S. government plummeted 31 percent, a drop described by a debt watchdog group as “unprecedented during a time of economic growth.”
The freight paid by U.S. businesses is already down another 18 percent in the first quarter of the 2019 year (the fiscal year for the government started last October). It’s part of the reason why the federal deficit soared 42 percent in that same quarter, despite a booming economy and no major war straining the budget.
The latest head-shaking factoid about our red ink is that the federal government next year will spend more on interest on the debt than it will on children. As one critic put it: more on the past than on the future.
Amazon’s financial statements also show it’s only the U.S. that’s letting the company contribute nothing of late.
Amazon’s total taxes paid to the U.S. and all U.S. states the past two years amounted to just $267 million (counting rebates, on more than $16 billion in profit). While its taxes paid to foreign governments totaled $1.3 billion. So a company we call “ours” contributed nearly five times as much into the kitties of countries abroad as it did here at home.
Gardner says he calls out when rich, successful companies pay nothing not because he thinks they’re evil. But because it’s “spurring a crisis of democratic legitimacy.”
It isn’t just that vital public services might go wanting (though they may). It’s that everyone else may eventually say: If even Amazon doesn’t have to pay, then why the bleep should I?
“It’s an extremely potent reinforcement of distrust,” Gardner said. “It signals strongly that we have a system that’s tilted to benefit the big and powerful, not the rest of us.”
Gardner said the obvious answer is to actually reform the tax system, so that those with an ability to pay at least contribute something.
We’re so distant right now from that more democratic ideal — the notion of asking not what your country can do for you, but what you could do for your country. Unless you’re a sovereign, borderless, taxless nation-state. Then what’s going on makes perfect sense.