Editor’s Note: Edward J. McCaffery is Robert C. Packard trustee chair in law and a professor of law, economics and political science at the University of Southern California. He is the author of “Fair Not Flat: How to Make the Tax System Better and Simpler” and founder of the People’s Tax Page. The opinions expressed in this commentary are his own. View more opinion at CNN.
Vice President Joe Biden is right to join the chorus of other leading Democratic presidential candidates, such as Sens. Elizabeth Warren and Bernie Sanders in criticizing the fact that Amazon paid no federal income taxes in 2018. Amazon, a company whose market capitalization or value has been flirting with the $1 trillion mark for some time now, had $233 billion in revenues in 2018, showed $11 billion in pure profit before taxes, and actually got a tax refund of $129 million, on account of tax losses and credits brought forward from prior years.
Nice work, if you can get it. Amazon has gotten it.
So, what is Amazon’s tax rate? According to The Institute on Taxation and Economic Policy, it was at 11% from 2011 to 2016, which was apparently too much for owner Jeff Bezos’s tastes – Amazon’s 2018 income tax rate plummeted to -1%. That’s a minus sign in front of the 1, signaling a negative tax rate.
“I have nothing against Amazon, but no company pulling in billions of dollars of profits should pay a lower tax rate than firefighters and teachers. We need to reward work, not just wealth,” Biden said in a tweet.
Biden is right that not many firefighters and teachers are quite so lucky; he is also right calling for the need to “reward work, not just wealth.” Americans with higher incomes are taxed more under the progressive rate system. But wealth, which includes assets, property and other capital that doesn’t generate “income” under the tax laws – like, for example, Amazon stock, which has never paid a taxable dividend – gets taxed lightly, if at all.
According to a study from the Tax Foundation, the average single American worker faced federal taxes of 29.6% in 2018. For those who remember their high school math, that’s an infinite multiple of Amazon’s tax rate.
To give credit where credit is due, Amazon is also right in its response to Biden: “We pay every penny we owe. Congress designed tax laws to encourage companies to reinvest in the American economy. We have. $200B in investments since 2011 & 300K US jobs. Assume VP Biden’s complaint is (with) the tax code, not Amazon,” the company tweeted.
Indeed, there is no evidence that there is anything illegal with Amazon’s less-than-zero tax bill: the company is taking advantage of lower tax rates, credits and losses from years prior. But just because the situation is not illegal does not mean it is right, as Warren and others have pressed.
It is time to change the laws that allow this state of affairs to persist. (And, yes, Warren has a plan for this – a proposal to make companies pay at least 7% in taxes on profits over $100 million, which would have made Amazon pay some $700 million in taxes for 2018).
Until the fix comes, if ever it does come, should we be applauding Amazon’s tax-savvy, and letting them off the social responsibility hook? Not so fast. While Amazon may not have paid any federal taxes in 2018, it stills pays a certain piper: The company has steadily increased the amount it has spent on lobbying in the last decade, reaching more than $14 million in 2018 – a record high for the company.
Amazon’s top lobbying priority? Taxes, according to a report from Fox Business.
Amazon is not alone. Plenty of special interests cranked up their lobbying as President Donald Trump’s tax cuts, also known as the Tax Cut and Jobs Act of 2017, made their way through the swampy halls of Congress. And this is not even considering the campaign contributions from corporate donors, which do not even have to be disclosed if they come in the form of “dark money.”
Lo and behold, these special interests – corporations like Amazon or trade associations like real estate investors – have been the big winners in Trump’s tax reform, just as the wealthy have been the big winners in the entire history of tax in America. The losers? Firefighters, teachers and ordinary workers who can’t afford lobbyists to give them tax breaks.
The swamp is growing. As long as lobbying leads to benefits such as Amazon’s less-than-zero tax rate, the money will keep pouring in. And as lobbying money goes in, tax breaks come out – and ordinary workers are left paying for just about everything.
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We need a better tax system, one that addresses wealth as well as work – and that is simple, fair and lobby-proof. It’s a good start that Democrats are not turning a blind eye to Amazon’s ability to avoid federal taxes. We should insist that our politicians go further, to fight for ordinary Americans and to address the injustice that has them, alone, paying the price of civilization for all.
This article has been updated with the original source of the research on Amazon’s taxes.