From Fortune:
Those wondering how many zeros Amazon, which is valued at nearly $800 billion, has to pay in federal taxes might be surprised to learn that its check to the IRS will read exactly $0.00.
According to a report published by the Institute on Taxation and Economic (ITEP) policy Wednesday, the e-tail/retail/tech/entertainment/everything giant won’t have to pay a cent in federal taxes for the second year in a row.
This tax-free break comes even though Amazon almost doubled its U.S. profits from $5.6 billion to $11.2 billion between 2017 and 2018.
To top it off, Amazon actually reported a $129 million 2018 federal income tax rebate—making its tax rate -1%.
. . . .
ITEP notes that its non-existent federal tax payment is a result of the Trump Administration’s corporation-friendly tax cuts. The think tank writes that the 2017 Tax Cuts and Jobs Act not only decreased corporate tax rates from 35% to 21%, but it also didn’t close “a slew of tax loopholes that allow profitable companies to routinely avoid paying federal and state income taxes on almost half of their profits.”
Link to the rest at Fortune
PG apologizes for the annoying auto-play video with an accompanying audio track in the OP.
PG also notes that Amazon doesn’t write the federal or state tax codes and PG hasn’t seen any reports that Amazon has violated any of those laws.
As far as tax “loopholes” are concerned, one person’s loophole is another person’s reasonable provision for calculating a fair tax rate.
One of the most commonly-used deductions for individual taxpayers is the mortgage interest deduction. If an individual or couple purchased a home and borrowed money to help fund that purpose, the interest they pay on that loan is deductible from their gross income.
The rationale for this loophole is a belief by the elected representatives of the people that a great many benefits arise when citizens are able to purchase and own their homes. Community stability and the encouragement of civic virtues due to lower rates of transience within a community, encouragement for couples to have children, the benefits to those children (and future taxpayers) that arise from being able to grow up in a single home and attend neighborhood schools as compared to moving to a new location every one-two years due to rent increases on a rented residence, etc., etc., etc.
While there are counter-arguments, PG suggests the home mortgage deduction is highly-valued by a large majority of the adult population of the United States.
When dinosaurs walked the earth, PG took a couple of income tax law classes in law school and several of his classmates earned their Masters of Law in Taxation after completing regular law school.
The complexity and weirdness of the US tax laws cannot be overstated. There are tax attorneys in the United States who earn a good living for their entire careers by specializing in the application and avoidance of taxes imposed under a couple of provisions in the tax law that most people have never heard of and would have difficulty in understanding without extensive prior tutoring in the nearly impenetrable language and concepts and conflicting interpretations of such underlying those laws.
Each of the 50 states have their own individual tax laws and the potential number of unintended interactions between state and federal tax laws probably cannot be calculated.
Speaking only of the US tax laws, there are disagreements about how long they are. In 2015, the Tax Foundation said the Federal Tax Laws and Regulations total more than ten million words.
This figure includes the federal internal revenue code (2,412,000 words long) and federal tax regulations (7,655,000 words long). It does not include the substantial body of tax-related case law that is often vital to understanding the tax code.
The length of the federal tax code and regulations has grown steadily over the past sixty years. In 1955, the two documents were 1.4 million words in length. Since then, they have grown at a pace of about 144,500 words a year. Today, the federal tax code is roughly six times as long as it was in 1955, while federal tax regulations are about 2.5 times as long.
. . . .
Americans spend 6.1 billion hours and $233.8 billon complying with the tax code. Due to increasing tax complexity, over 90 percent of taxpayers now hire professional tax preparers or use tax preparation software.
Why is the federal tax code so complex? In part, it’s because politicians have used the tax code to administer dozens of areas of federal policy – from healthcare to energy to education. In part, it’s because defining income and determining tax liability are inherently difficult tasks. And, in part, it’s because politicians have not made any serious effort to simplify the federal tax code for at least thirty years, instead adding on new provisions on top of one another.
The federal tax laws are so lengthy that there are disputes about how long it actually is. Again, from The Tax Foundation in 2014:
Andrew Grossman, the legislation counsel for the Joint Committee on Taxation that helps write tax laws, attacked us in Slate yesterday for saying that the tax code runs 70,000 pages, countering that it’s “only” 2,600 pages.
. . . .
There’s the literal statutes that Congress has passed (Title 26 of the U.S. Code). The Government Printing Office sells it spread over two volumes, and according to them, book oneis 1,404 pages and book two is 1,248 pages, for a total of 2,652 pages. At perhaps 450 words per page, that puts the tax code at well over 1 million words. (By way of comparison, the King James Bible has 788,280 words; War and Peace runs 560,000 words; and the Harry Potter series is just over 1 million words.)
. . . .
However, a tax practitioner who relies just on the tax statutes will go to jail, because so much of federal tax law is in IRS regulations, revenue rulings, and other clarifications. Congress will set down a policy and leave it to the IRS to write all the rules to implement it. These regulations aren’t short: the National Taxpayer Advocate did a Microsoft Word word count of the tax statutes and IRS regulations in 2012, and came up with roughly 4 million words. Again at roughly 450 words per page, that comes out to around 9,000 pages. The National Taxpayer Advocate also noted that the tax code changed 4,680 times from 2001 to 2012, an average of once per day.
. . . .
But, a lawyer who relies just on cases and regulations isn’t a very good lawyer, because most court decisions are made on the basis of previously decided cases. The respected legal publisher Commerce Clearing House (CCH) puts out such a compilation, the Standard Federal Tax Reporterof 70,000 pages, with notations after each statute containing relevant cases and other information. CCH itself considers this volume to be representative of “the tax code,” since an expert needs to know all 70,000 pages to understand the tax code in full.
So, has Amazon paid its “fair share” of income taxes? PG is highly confident that Amazon has used well-qualified tax experts to prepare its tax returns and calculate its tax liabilities.
For a long time, Amazon had no taxable profits at all. Indeed, it had losses. One of the concepts contained in various parts of the federal income tax laws is a “tax loss carry-forward”. Investopedia describes this as follows:
A tax loss carryforward is a provision that allows a taxpayer to carry over a tax loss to future years to offset a profit. The tax loss carryforward can be claimed by an individual or a business in order to reduce any future tax payments.
Amazon operated at a loss for the first several years of its existence and very thin profits for a lengthy period of time thereafter. To the best of PG’s knowledge, Amazon received no material payments from the US government to help it survive during those years.
Absent the benefits of loss carryforwards during the first years of lean profits, it’s possible that Jeff Bezos would have given up on the possibility that Amazon was ever going to be worth the very hard work he was putting into the company and closed it down so he could spend time working in another more financially-rewarding business.
Amazon currently reports it has 613,300 employees. PG suspects Amazon pays far better wages than McDonald’s does and each of those employees pays individual federal income taxes. From the standpoint of federal government tax revenues, is it a good thing for a company to employ over half a million people who each pay taxes? Would the country be better off if Amazon paid some corporate income taxes, but only employed 50,000 people?
PG will also note that, for its US employees, the company pays a huge amount of money into Social Security and Medicare as its employer’s share of those taxes, which are based upon the wages of its employees.
Ah, this again. 😉
Had an ADS friend point it out to me. I smiled and pointed out that the POTUS hates the Post/Jeff/Amazon. So if Amazon is doing any ‘wrong’ in any way don’t you think good old Trump would have the DoJ or IRS all over them? But there’s nothing – not a peep or a tweet that the IRS is looking into Amazon and Jeff.
So, if people think the tax laws are broken – fix them. We know if it looks like a new law will hurt Jeff you know Trump will sign it.
And while the ADS types whine, I have fun laughing at them because to change the rules/laws to force Amazon to pay more would most likely bankrupt a lot of other companies.
Normally, the IRS conducts continuous audits of major US companies, to the point of having IRS audit teams on site at company HQ.
Wow, that’s invasive. Now I loathe the government even more. (Which I previously thought was impossible.)
Dan
If so then shouldn’t they have already raised a stink if Amazon was playing games? 😉
The point I was trying to make is that the people that should be pointing out any Amazon wrongdoing aren’t … only those that wish Amazon was doing wrong.
Even if there were something to raise a stink, no one would know about it right now. As PG points out, there are loss carry forwards, and as long as that’s the case, any adjustment the IRS makes probably gets negated by the carryforward. It’s complicated by the impact of international gains/losses, & the ability of corporate entities to amend prior years returns based on subsequent year adjustments, & so forth & so on & scoobie doobie doobie. And then there’s politics – I had a case one time where I stumbled across a court constructed legal doctrine in a different case that when applied in my case, negated a huge interest deduction – wound up in conferences with a national accounting firm and the National Office (the NO upheld me.) But when a friend of mine had a similar case & wanted to make the same kind of adjustment, the Chief Counsel decreed that the doctrine would not be applied in international situations even though it was a slam dunk winner (insofar as anything is if litigated – meaning you can always lose even certain winners.)
Plus unlike government in general, the IRS is very close lipped about what goes on in audits, & until matters get to the point of litigation, the public will not know what’s going on in an audit. And you need to always remember that corporate taxpayers generally agree with IRS adjustments, because the adjustments are usually correct. They don’t waste their time & money to fight correct adjustments – they just do their best to plan around them in subsequent filings.
All of which means that as far as the general public is concerned, don’t nobody know diddley about Amazon’s tax situation.
“All of which means that as far as the general public is concerned, don’t nobody know diddley about Amazon’s tax situation.”
Which tells us that once again Fortune was just showing off its ADS to sell more ads … 😉
Forty years with IRS Chief Counsel here. Let me congratulate you on how much you retained from your law school classes. Excellent blog post.
Some observations:
The government tries to control the economy through the tax laws. Most people don’t understand or appreciate this. The idea that Republicans, much less the Democrats, believe in free enterprise & free markets is laughable. And it should be clear by now that the idea that the purpose of the tax system is to collect revenue to operate the government is nonsense, given the federal debt.
Jeff’s solution is attractive but a non-starter because the issue with the federal income tax is not so much the rates, as the definition of “income.” That’s where the complications & political maneuvering comes in. Anyone who does not believe accounting is one of the creative arts doesn’t understand what’s going on.
Two things I believe, based on my experience rather than on my knowledge of the tax laws.
One is that the income tax has corrupted the citizenry. Everyone lies about their taxes, to the government and to each other. Maybe any tax system does that, but it suggests to me that any reform of the income tax should be to vastly reduce the number of people & businesses subject to it.
The other is that the income tax is what has made it possible for the federal government to become the monstrosity it is. Without the illusion of a steady stream of revenue, federal borrowing would never have been enough for the government to grow so large and so ubiquitous in our lives.
I’m not sure that, short of actual revolution, anything can be done about any of this. The tax system is like the monetary system – a necessary delusion.
Thanks for the expert commentary, Hamron.
The only viable solution is to move to a whole new star system and forbid any politicians, lobbyists, and community activists from going along.
A fresh start with the first law being that anybody engaging in the above activities be shot on sight.
It should work fine for at least a century.
After that… well, there’s billions of planets out there. 😀
Ah, are by chance quoting from that LL book that when a planet gets too civilized it’s time to move on? 😉
Sadly it’s like making your first million – making the next million is easy because you had a million to work with.
Now if we only had a way to find/terraform as needed/get to the next habitable planet …
Not quoting exactly, but I wouldn’t disagree with Heinlein if you replaced “civilized” with “socialized”.
(Good book but a bit self indulgent.)
The real problem is the Second Law of Thermodynamics.
All systems tend over time to chaos and disorder and nothing induces as much entropy into a social system as taxes. And once taxes emerge there’s no getting rid of them hence the only sensible alternative is to scram.
(I’m already saving for one of Musk’s tickets to Mars. If I cashout by the time Marstown is ready for civilian immigrants I’ll be able to make it.)
It would be substantially cheaper to move all the politicians, lobbyists, and community activists to a new star system. We wouldn’t have to worry about finding them a habitable planet at the other end, or for that matter, any place to land at all.
Think Golgafrincham ‘B’ ark.
Marching Morons solution.
But how do you bell the cat?
Politicians control the big guns.
Just let them keep the mudball.
Civilizations need frontiers.
Absolutely.
Otherwise they turn inwards and destroy themselves from within.
This needs to happen:
https://www.instagram.com/p/Bt4gAj0HRXW/
Chief Financial Officers and CEOs pretty much decide how much multi-national corporations pay in taxes to which governments. A multi-national corporation can structure their books to show profits only in jurisdictions where profits are lightly taxed, and they can adjust profits by showing counterbalancing investments in research, etc. At some point, tax laws have to be designed to direct corporate decisions. Governments must be as smart as the corporations and structure taxes to achieve the goals they want. Not easy. And politics fuddles it all.
It becomes a big linear programming problem of minimizing the total liability.
Which is exactly the kind of problem the much hyped “AI” software is really good at. The more complex the maze a regulation, the easier it is to game.
Every time anyone tries to reform the tax code, Congress raises holy hell. SIMPLE TAX. 10%. Everyone/Every company. Done.
Simpler tax.
Consumption tax on all purchases of new goods, with prebate on first $X. No income tax. No corporate tax. No tax returns. No deductions. No tax tables. No social security tax. No medicare tax. No estate tax. No excise tax. No W2. No tax deducted from pay. etc.
And the good thing about consumption taxes is that they can’t be avoided.
Well, not good exactly. Good would be no taxes ever, but for those worried about people/companies paying their “fair share,” consumption taxes are a far better way of ensuring that a “fair share” is taken out of someone’s pocket.
Never going to fly because modern politics prefers the populace do two things and two things only: consume as much as their credit allows and blindly vote for the “right” party.
Flat consumption taxes are decried as evil because they’re not progressive enough and they encourage savings over consumption and borrowing.
The prebate makes them progressive. The degree of progressivity is governed by the rate and the allowable untaxed spending amount.
Saved money is loaned. The borrower pays tax when he spends it.
Remember, we’re not talking economics here but activist talking points, which bear no resemblance to the real world and never bother to consider the law of unintended consequences.
Agree. However, the audience here isn’t all activists, and many many welcome accurate information on economic issues. I don’t surrender the public square to activists.
If Amazon were doing anything different than all the other companies, they would not get away with it: they are far too large a target.
However, if you hate everything Amazon (ADS), everything (lit.) is blamed on them, and makes good click-bait.
And the 1% would far rather have you railing against a straw business target, than focusing on them.
“And the 1% would far rather have you railing against a straw business target, than focusing on them.”
It bears pointing out that Jeff Bezos sits at the very tip top of the 1%, since he is the richest man in the world.
Amazon is not a straw man merely because they engage in the same tax evasion strategies practiced by other corporations. It is still culpable.
Do you have a health insurance policy at work where your premium is taken out before taxes? Then you are “evading” your taxes. Do you list all of your dependents on your tax return? Then you are “evading” your taxes. Do you have an IRA or a 401K? Then you are “evading” your taxes.
Sorry, but taking advantage of every legal method of reducing your taxes is not “culpability” – it is sanity. And it is not “evasion,” it is “avoidance.” The same thing whether for an individual or a corporation.
I would suggest that you read this, https://tax.findlaw.com/tax-problems-audits/tax-evasion-vs-tax-avoidance.html, before shooting your mouth off again about “tax evasion strategies.”
Amazon is not a straw man merely because they engage in the same tax evasion strategies practiced by other corporations.
Amazon engages in tax avoidance, not tax evasion. We all engage in tax avoidance by paying the least tax allowable under law. Home owners routinely do this by deducting mortgage interest.
I would be honestly surprised if Amazon really brought in $11B in profit this year. In revenue? Definitely. But Amazon is well known for running super thin margins and plowing money back into the company to spur growth. I think the last time I heard they actually reported a profit it was something like $3 million.
Times have changed. The link is to Amazon’s income statements for the last four years. To see the real power, click on the cash flow item at the top of the page. It has never been so large, but has always been the engine that drove Amazon. For years past, people complained about the meager income statement, and ignored the very healthy cash flow.
For those who don’t live in the financial world, you can get almost any public company income statement by searching [xxxxx financials yahoo], where xxxxx is the company name.
Net income:
2018: 10,073,000,000
2017: 3,033,000,000
2016: 2,371,000,000
2015: 596,000,000
https://finance.yahoo.com/quote/AMZN/financials?p=AMZN
All those ads they’re selling to authors. 😀
Sorry but you’re a wee bit off.
This year’s numbers aren’t fully in but last year they brought in US$232.9B in total revenue. About half as much as WalMart.
Of that $11.2B in income $7.3B came from their cash cow, AWS. For them, That’s normal.
The parts of the business that everybody gripes about exist to provide free cash to invest in new businesses and new technologies, like AWS, not to feed tax hungry governments.
https://www.cnbc.com/2019/01/31/amazon-earnings-q4-2018.html
Amazon didn’t write the laws.
Nor are they the only company playing by the rules congress laid down long before Amazon was born. They just play the game better.
“They just play the game better.”
Which is what upsets the ADS types the most! 😉
Amazon is also the savior of the US Postal Service. If it weren’t for Amazon’s contract with the USPS, there would be a whole lot of unemployed postal workers. So even if they somehow manage to not pay taxes, they’re contributing in other ways that people don’t normally consider.