Per the furor over tax breaks Amazon has received or was promised in connection with negotiations over the location of its new headquarters in Northern Virginia and New York City (now canceled).
First, some foundational principles about taxation in the United States:
1. Each person or taxable entity is required to pay all taxes due under applicable tax laws, including taxes payable to federal, state and local governments.
2. No one is legally obligated to pay any additional taxes other than those described in paragraph 1. Paying twice as much as the amount due doesn’t make anyone a better taxpayer than someone who pays the exact amount of taxes due.
3. If anyone wishes to make a gift or donation in any amount to a federal, state or local government, they are free to do so. The United States Bureau of Fiscal Service is authorized to receive gifts presented to the federal government (click here for details). PG is not an expert on the laws of every state and local government, but suspects there is a way to give a gift to most, if not all, of them as well.
4. Any person or entity is entitled to organize their financial affairs in a manner to reduce their tax obligations to a smaller amount as permitted under the applicable tax law. For example, donations to charitable organizations are deductible from taxable income under federal tax law, so if a person with an income of $50,000 per year wishes to give $10,000 to The American Red Cross, that person’s federal income taxes will be lower than if the person had not made that gift. Ditto for a gift to Harvard University or the Presbyterian Church. Perhaps donors to the Red Cross have been criticized as tax cheats by some critics, but PG is unaware of that having ever happened. A corporation can deduct charitable contributions of up to 10% of its taxable income for a given tax year.
5. Various states and cities have widely-varying tax structures. Some state lawmakers, democratically elected by the residents of the state, craft state tax legislation to encourage the inmigration (not a typo) of individuals and businesses. For example, Florida, the third most populous state in the U.S., has no personal income tax. An individual moving from New York City to Miami will be escaping the New York state income tax (maximum rate – 8.82%) and the New York City city income tax (maximum rate – 3.876%). New York State has had a net outmigration of its residents (more New York residents moved to other states than residents of other states moved into New York State) for nearly 20 years. Florida is the most popular destination for those who are leaving New York. PG is unaware of large groups of people picketing New Yorkers who are leaving the state for lower-taxed states because their departure will decrease taxes collected by New York. The second most populous state, Texas, is the inmigration leader among all states. Like Florida, Texas has no state income tax.
PG could go on, but that would be even more boring.
His point is that, at least in the United States, it is common practice for individuals and businesses to adjust their activities and select the location of their residences/headquarters based upon tax considerations.
Why should Amazon be any different?
Is anyone claiming that the financial inducements the officials of both the state and city of New York offered to Amazon were illegal? That those officials broke the law?
If the government officials acted legally in offering such financial inducements, did Amazon act illegally in accepting those inducements?
Should Amazon have acted in ways harmful to its financial interests (and the financial interests of its shareholders)?
From SCC Insight (Independent news and analysis of the Seattle City Council):
[W]ho owns Amazon? In a sense, everyone does: the stock is so widely held by mutual funds and ETFs, and especially index funds, that tens of millions of people own a slice of the company whether they are aware of it or not. Amazon stock is paying for kids to go to college and older Americans to live comfortably in their retirement; and yes, it’s also helping lots of rich people get even richer. By the way, the Seattle City Employees Retirement System is heavily invested in a Russell 1000 index fund (about $610 million as of last December), so Amazon’s success is contributing to our city employees’ future retirement as well.
Link to the rest at SCC Insight
PG is not an expert on the topic, but he would bet that every major public employees’ pension fund has a stake in Amazon’s financial well-being. Plus every major college or university endowment fund and employee pension fund. Plus the savings and investments of tens of millions ordinary Americans. And more than a few ordinary Canadians and Japanese. The list for a company the size of Amazon goes on and on.
Let’s assume Jeff Bezos wakes up one morning and decides he’s made enough money and Amazon has made enough money too.
The new Amazon is not only going to build its second headquarters in New York, it’s going to refuse to accept any government inducements it’s been offered. Instead of paying the amount of tax legally due to New York City and the state of New York, Amazon will voluntarily double those tax payments.
The new Amazon will double its tax payments to Seattle and the State of Washington and to the federal government. Instead of paying the amount it withholds from its employees’ paychecks for state and federal income taxes, Amazon is going to double that payment and pay the additional cost itself.
Amazon’s new policy is that it’s going to give money to federal, state and local governments to help fund the good works they do until the money runs out.
What’s that going to do to Amazon’s stock price and the investments of all of its shareholders (including the individuals who benefit because an institutional investor has purchased Amazon stock on their behalf). What about the future prospects of all of Amazon’s employees (over 600,000 and growing), including its warehouse employees and people who staff customer service?
Do the interests of those New Yorkers who think the city and state were giving too much away to Amazon trump the interests of all the people who benefit from the continuing health of Amazon’s business?
End of rant. PG will go lay down and take deep breaths for a few minutes.
I’d just like to add, for anyone considering moving to the Nashville, Tenn. area, that I grew up there and it is a fantastic mid-size city. Top-notch universities, a world-class medical center, a symphony, art museums and galleries, excellent restaurants, great shopping, an educated populace, cultural diversity… If I ever left California, that’s where I’d go. The tax situation is secondary.
Excellent post PG.
This is ADS purely and simply. The warm feeling of the activists and of AOC at this “victory” will no doubt be cold comfort in the coming years to those who remain unemployed and would have had a job. Or to the residents who may well face a higher tax burden in future.
And what about the benefits that would have accrued to New Yorkers from the spending of the substantial additional revenue that would have been received, even with the breaks.
It is pointless to say that a taxpayer paid zero tax in any particular year, whatever their revenue, without a proper analysis of why. Is the company recouping losses it made in prior years? Is it re-investing substantial amounts in areas encouraged by the various tax codes? Is it giving all its income to charities? Certainly paying zero tax on substantial revenue year after year is an indication that the company needs to be looked at. Which I am sure your IRS is doing. After all, even large corporations cheat, though their cheating tends to involve convoluted schemes to avoid the intended operation of the law rather than evade it. Sometimes an investigation results in cheating companies being caught. Sometimes it may result in recommended changes or repeals to laws which are being exploited and not working as intended. And I suspect that more often than not only minor issues are found.
Tax laws are used for much more than simply raising money and handing it over to politicians. All sorts of policies are implemented in tax law. In Australia there is no deduction for interest payments on private homes. However, as posted above, there apparently is such a deduction in the US. The US government no doubt introduced this provision to encourage home ownership. Incentives of various types change regularly and are often implemented in the tax codes. This is one of the major reasons why the volume of tax legislation has expanded so rapidly, certainly in both the US and Australia. Off the top of my head Australian tax concessions apply or have applied to Primary Industries, Authors and Inventors, Films, residents of remote areas, charities and donations to charities, non-profits and co-ops, encouragement of some foreign investment, expenditure by businesses for business purposes, investment allowances. The list goes on and on. I have no doubt the US tax codes are very similar.
Headlines like Amazon paid zero tax on X billion revenue are meaningless without examining why. Usually on investigation there will be legitimate explanations. Sometimes your IRS may feel that Amazon is using a provision in accordance with the letter of the law but not its spirit, in which case it may recommend changes to that law. Which if made will apply to all, not just Amazon.
This is simplistic hysteria exploiting widespread public ignorance.
Ah, but ‘simplistic hysteria exploiting widespread public ignorance’ stunts attracts eye balls and aids in ad revenue.
While the ADS was strong with this, I felt like a lot of it coming from neighboring communities and businesses who didn’t want to see their rents rise, and who worked jobs that wouldn’t transfer over to become those magical, high-paid Amazon jobs. The city would certainly have benefited, but the people living in the area would likely have been left behind and forced to move out of the area.
Interesting thought. I hadn’t really considered this. Not everyone wins in these situations. But I suspect even in the local area there would be far more winners than losers. And for those who do lose local politicians are often more than happy to use some of the additional tax money to compensate them. But yes, there will certainly be some losers.
Sadly any change has to bring about both winners and losers – well, I guess there have been some changes where ‘everybody’ loses …
Not that ‘no change’ will keep some from ending up losing anyway, but that’s life too.
I suspect that the ADS crowd driving Amazon out before they even broke ground will be considered a ‘loss’ once the dust settles – except for Amazon – as they didn’t have a chance to waste much of their money on NYC …
CG – I agree about the source of some of the local opposition to Amazon’s new headquarters.
However, the knock-on effects of an Amazon headquarters would be huge. The people who work at the headquarters will spend most of their money locally – groceries, taxis, nannies, plumbers, carpenters (additional construction in the neighborhood), etc., etc.
Some of Amazon’s suppliers are also likely to want offices near the New York mothership, so they’ll bring more money into the city.
Bentonville, Arkansas, is the headquarters of Walmart.
When I first visited Bentonville many years ago, it was a small town (about 8,000 people) in a low-income part of the state. Walmart was the biggest thing in town, but Walmart was still pretty small.
At that time, Walmart was growing fast, but had difficulty recruiting executives to work in its headquarters because, for someone from Chicago or New York or Los Angeles, Bentonville was a dump, a backwater, and a hard sell for spouse and children.
Today, Bentonville is a much larger, much nicer city of over 50,000. The median income for households in Bentonville is $79,259, while the mean household income is $106,626. For the state of Arkansas as a whole, the median household income is $43,813 and the mean household income is $61,330.
If you drive around Bentonville, you’ll see some large office complexes filled with offices of Walmart suppliers. There are a lot of large and attractive homes in the Bentonville area. Some are owned by Walmart executives and others are owned by people who provide goods and services to Walmart and its employees.
The Bentonville public schools are the best in the area. Participation in AP exams is very high. Bentonville schools also include a significant number of underserved students and can afford excellent programs for this particular group.
Northwest Arkansas Regional Airport in Bentonville was opened in 1998 and has been expanded substantially since that time. It offers daily nonstop jet service (with first class seats included) to major cities such as New York City, Los Angeles, Chicago, Dallas, Minneapolis, Washington D.C., Atlanta, and San Francisco.
Perhaps the folks in Virginia, Tennessee, and Arkansas are made of sterner stuff?
This is ADS purely and simply. The warm feeling of the activists and of AOC at this “victory” will no doubt be cold comfort in the coming years to those who remain unemployed and would have had a job. Or to the residents who may well face a higher tax burden in future.
And what about the benefits that would have accrued to New Yorkers from the spending of the substantial additional revenue that would have been received, even with the breaks.
It is pointless to say that a taxpayer paid zero tax in any particular year, whatever their revenue, without a proper analysis of why. Is the company recouping losses it made in prior years? Is it re-investing substantial amounts in areas encouraged by the various tax codes? Is it giving all its income to charities? Certainly paying zero tax on substantial revenue year after year is an indication that the company needs to be looked at. Which I am sure your IRS is doing. After all, even large corporations cheat, though their cheating tends to involve convoluted schemes to avoid the intended operation of the law rather than evade it. Sometimes an investigation results in cheating companies being caught. Sometimes it may result in recommended changes or repeals to laws which are being exploited and not working as intended. And I suspect that more often than not only minor issues are found.
Tax laws are used for much more than simply raising money and handing it over to politicians. All sorts of policies are implemented in tax law. In Australia there is no deduction for interest payments on private homes. However, as posted above, there apparently is such a deduction in the US. The US government no doubt introduced this provision to encourage home ownership. Incentives of various types change regularly and are often implemented in the tax codes. This is one of the major reasons why the volume of tax legislation has expanded so rapidly, certainly in both the US and Australia. Off the top of my head Australian tax concessions apply or have applied to Primary Industries, Authors and Inventors, Films, residents of remote areas, charities and donations to charities, non-profits and co-ops, encouragement of some foreign investment, expenditure by businesses for business purposes, investment allowances. The list goes on and on. I have no doubt the US tax codes are very similar.
Headlines like Amazon paid zero tax on X billion revenue are meaningless without examining why. Usually on investigation there will be legitimate explanations. Sometimes your IRS may feel that Amazon is using a provision in accordance with the letter of the law but not its spirit, in which case it may recommend changes to that law. Which if made will apply to all, not just Amazon.
This is simplistic hysteria exploiting widespread public ignorance.
AOC has no clue. She speaks of $3 billion as if it is money-in-the-bank that the City of New York has to pay Amazon or spend on other projects. It is not and it never was. This woman is willfully ignorant and dangerously stupid.
Since I was one of the more heated posters in the other thead I’ll post where I agree and disagree
Agree
– Amazon has a duty to its shareholders to spend money as responsibly as it can foresee and I don’t see that it did anything wrong
– I’ve no problem with Amazon paying almost no income tax and using revenue to reinvest into itself
Disagree
– overall tax breaks and subsidies by states and cities hurt overall competitiveness
– specific tax breaks to a company hurt their current and future competitors and are usually only available to giant companies
– a lesser evil is a tax break available to all in a category or market, like one for any company moving its HQ (be it Amazon or a 3 state pizza chain) that is proportion to revenue
Tl;dr I think states should compete with their tax rates not specific deals.
Example of screwing it up in every way:
https://www.nytimes.com/2011/05/15/us/15cncgreising.html
So, start a political movement to outlaw any sort of financial incentives to lure companies to locate in your state. Then there won’t be any deals for Amazon or any other big company.
However, a large company can afford to locate new facilities in any state. Since the company wants to make money, if one state helps fund the establishment of a factory or warehouse, etc., and another state does not, which state is more likely to end up getting the new factory?
Large companies are also not limited to doing business in the US. GM has four auto plants in Mexico. Ford and Chrysler each have three Mexican plants.
The majority of the output of each plant is sold in the United States. One of the benefits of the lower cost of Mexican plants is that the auto company can charge its customers less for a car built in Mexico and still earn a profit.
That’s kind of my point but in reverse. If all the businesses went to the state with the lowest taxes then the other states would have to improve their financial status and lower their corporate taxes.
Instead they compete to bribe big names, doing nothing for small and medium businesses that employ the majority of people.
And there is a party like that, the Libertarian party. You can see how well they fair in a world of giveaways to people and companies.
Instead they compete to bribe big names, doing nothing for small and medium businesses that employ the majority of people.
Increased tax revenue from the new business relieves the burden on all other businesses, and provides opportunity for them to trade with the new business.
I’ll send you $5 on PayPal or Amazon gift card if Virginia or Tennessee drop their business taxes next year or the year after. Or even if they made a significant payment on their debt(Tenn is around $6 billion, well under the increases taxes). My bet is they will give more freebies to someone, companies or individuals.
How do you think their tax rates over the next 10 years will compare to New York’s?
I doubt it will shift much, they will find new pork to spend it on to gather votes instead of clearing debt or other issues.
How come they haven’t already matched New York’s high taxes? Is there no available pork?
Because they already have control and a huge debt. But with more money they can keep the debt and get firmer control so they don’t have to worry about flipping parties. Why is there $22 trillion in basic federal debt, plus $4 trillion in fed reserve, plus $100+ trillion in contingency debts? Both parties giving freebies out, of all varieties, that they can’t pay for to try and keep control.
What does that have to do with Virginia and Tennessee pork? For years they have had the opportunity to find new pork. They could have raised taxes to spend on pork. Why didn’t they?
Merely an example that if you can get loans and go in debt buying voters they will. Tenn went $6 Billion in debt doing exactly that, or are you going to rewrite history? If they hadn’t so mismanaged in the past they wouldn’t have that debt and their current taxes. Expecting them to magically act different in the future is confusing to say the least.
Magic? Magic competition? What does that have to do with Tennessee pork?
It is fine that you are just trolling since we weren’t going to agree. If you ever want another viewpoint watch Peter Schiff sometime on YouTube, just ignore his gold fetish.
The taxpayers of Virginia and Tennesee disagree,and have chosen their own course. They think getting $27 billion in incremental taxes is well worth granting $3 billion in abatement. They are happy to compete for that.
They also put their own welfare above the welfare of the folks in other states. Just like New York did for a while. (Mississippi does the same.)
They can choose however they like, but it is the same problem for the overall economy. The race to give away freebies and subsidies by both parties gives deals like this on one side and AOC on the other. Both major parties no longer pretend to compete to make the economy and living standards better, instead they compete in wish fulfillment.
Meanwhile everyone goes deeper in debt trying to fulfill all the wishes. How many states are currently debt free? How many major cities?
This one Amazon move isn’t a big deal, it’s the larger culture and economy that is the issue.
No state is totally debt free.
It’s not a particularly good yardstick because state income and spending fluctuates and even the best run states need to carry some debt.
The question really is what kind of debt and how manageable the debt load is.
That is known:
https://www.mercatus.org/statefiscalrankings
Pretty picture summarizes what is known and the linked PDFs provide the raw numbers. The most important part of the debt turns out to be unfunded public employee pension debt. By a lot.
There’s a handful of states on the edge of collapse paying day to day bills with borrowed cash but none of them got there by offering tax abatements. that’s because abatement deals are cash flow positive. Not even the worst run states, Connecticut and New Jersey, borrow money to give to private companies. They do borrow money to keep public employee unions happy so they’ll keep voting for them, as was the case in Detroit.
The whole point of abatement is that you collect less than the maximum *theoretical* tax in order to collect *any* tax at all. More important and always glossed over is that the company’s tax is reduced but the employees’ taxes aren’t. In Amazon’s case Amazon was receiving a theoretical *maximum* abatement of $3Billion but 25,000 employees averaging $150,000 would be paying half a billion each year, minimum.
6 years to breakeven.
And that doesn’t even include the taxes on the income of the construction workers, grocery stores, real estate companies, etc. resulting from what those employees would spend in their day to day lives.
Let’s see now where NYC is going to get that lost $500M annual tax revenue from.
None of the arguments make any economic sense. They’re just hollow moralizing. As the saying goes: beggar thy neighbor politics makes beggars of everybody.
For those that prefer video:
https://www.youtube.com/watch?v=_xKTde7-m_c
My argument against it isn’t that it doesn’t make financial sense for a state, but it hurts the overall economy and picks already winning companies and gives them a leg up.
Amazon was going to make a new HQ somewhere. If no states or cities offered deals then they would have still built it. Injecting that cash into a state that was well run and had lower taxes or high skill workers or other criteria important to Amazon.
Unfunded pensions again is part of a poorly run state, either due to poor management of pension funding, bloated employment, or robbing money to pay other bills.
You’re looking at it backwards.
The company is in control: they can go anywhere so they’ll choose the place that benefits them the most. They don’t have to go anywhere specific. If taxes aren’t the deciding factor, they’ll move down tbe list to real estate costs, prevailing wages, cost of living, etc. (None of that favors NYC. Or even Arlington.)
If nobody offers any incentives, they’ll go to the place with the lowest cost of doing business/lowest cost of living.
Remember what happened in 2010-11 to ebookstores?
The BPH conspiracy “leveled the playing field” by forcing all the prices to be the same everywhere. They eliminated “incentives” for consumers to go to the smaller ebookstores so they all went to the safest store. Which was Amazon. Before, discounts, sales, microcurrency rebates, were all incentives to go to Fictionwise, Diesel, BoB, etc. Now they’re all gone, and with them the value of interoperable epub.
The law of unintended consequences.
The only reason NYC was in the running for an Amazon HQ was the incentives. No incentives, no fscility, no jobs, no taxes.
Absent incentives, they might have placed all jobs in North Carolina, or Virginia, or Tennessee.
So yeah, hope Congress outlaws local tax incentives and sit back. Watch all major corporate HQ projects go to Montana, Delaware, Texas, Florida, everywhere but NYC, NJ, California. Or maybe they’ll go to to Ireland, Canada, Mexico…
Then watch for a new “rust belt” of declining cities.
Tax abatements aren’t pork or corporate welfare; they’re enablers. No incentive, no deal.
“If nobody offers any incentives, they’ll go to the place with the lowest cost of doing business/lowest cost of living.”
And I’m for that. My point isn’t that Amazon should be in NYC, or anywhere in particular, but the best run state for their particular needs instead of who has the biggest bribe. Maybe it would have been Texas, or Louisiana or wherever.
And if in an imaginary future Congress somehow did outlaw it and every HQ moved to Montana, Delaware, Texas, Florida, then I’m fine with that. NYC, NJ, California would be forced to be more competitive or people would follow the jobs.
That’s what a free market is, not government intervening with incentives or other subsidies.
Companies wouldn’t move to Ireland, Canada, Mexico if the federal government were leaner, could offer lower tax rates, etc. Instead there are hundreds of billions per year in farm subsidies, welfare, corporate welfare, state welfare, make work projects, etc. based on lobbyists, activists, and giveaways for votes.
And if in an imaginary future Congress somehow did outlaw it and every HQ moved to Montana, Delaware, Texas, Florida, then I’m fine with that. NYC, NJ, California would be forced to be more competitive or people would follow the jobs.
This is a question of federalism, not free markets. States run their own tax systems, and decide what is best for them. That’s why we see such a wide variety of tax schemes. Some states have high taxes, and some have low. Some have sales tax, and some don’t. Some have income taxes, and some don’t. Some want to compete for companies, and some don’t.
We should note that the New York abatements were available to any company that relocated to New York. It wasn’t a special deal for only Amazon. That was New York’s free choice. All the other states also freely chose.
No, any time a government offers a tax break, subsidy or any kind of deal different from the basic tax rate to companies that is interfering in the free market. Preferences, of any type, are one of the basic definitions of government interference in the free market.
And thanks for mentioning the NY abatements were available to others moving in state, I wasn’t aware of it but I still disagree with it. It may be a lesser evil as I mentioned in the other thread but it is still not healthy for the overall economy.
No, any time a government offers a tax break, subsidy or any kind of deal different from the basic tax rate to companies that is interfering in the free market.
It’s still competition among different state and local governments in cooperation with private interests in the states.
Cooperation between government and private interests is the opposite of the free market. Competition between states should be on how little they interfere with the market.
There are other forms of economies with state involvement in the marketplaces but they aren’t free market capitism that in theory was still the basis of the economy.
Competition doesn’t need a free market. Anyone can compete. Governments, private interests, Mississipi, Cowboy Bob, RinTinTin…
Nor do people have to limit competition to areas approved by bystanders. They don’t care what anyone thinks their competition should be limited to.
They can choose however they like, but it is the same problem for the overall economy.
Losers often complain about having to compete when they lose.
Again, bribery isn’t competing.
Let me ask you, when people you know complain about losing their job from US companies offshoring do you consider it losers complaining about having to compete?
Of course bribery is competing. If the incentives states offered Amazon are considered bribes, it is still competition. They were competing for Amazon using whatever means they had.
> is well worth granting $3 billion in abatement
If I understood the situation, most of that is just to get the tax burden down to levels already present in Tennessee and Virginia. So rather than going deeper in debt, NY was (mostly) just offering to accept a reduced tax rate.
…in return for the chance to tax 25,000 new highly paid employees and turning fallow land into a revenue-generation positive.
The deal was going to make them more solvent, not less.
That is the reason Cuomo and DiBiaso are screaming bloody murder. Both are facing tax revenue shortfalls and they were counting on Amazon employee taxes to reduce the shortfalls.
Activists complained that people from outside of NY would take the Amazon jobs averaging $150k/yr. Would these be the rubes from Mississippi coming north to beat out the New Yorkers for the jobs?
New York has been facing a steady loss of higher earners who don’t want to live under the the tax structure. Cuomo was complaining about it yesterday.
So, even if the activists are right in their idea that New Yorkers aren’t as competitive as the guys from Tupelo, at least they would replace some of the New Yorkers beating their way south.
Why not simply say that businesses have to pay taxes on income, regardless of profit or loss?
Because income = profit.
People confuse revenue with income. They are very different. Revenue is every dollar the firm takes in from sales. Costs are all the dollars the firm spends to make the goods it sells. Income is revenue less costs. That’s also profit.
Firms pay income tax on their income (profit). So does a plumber. He charges people for fixing pipes. That’s revenue. But he also has cost of pipe, tools, gas, truck, etc. Those are costs, and he subtracts them from revenue to get his income. He then pays tax on the income (profit).
If we tax the plumber or firm on revenue, it simply becomes a sales tax. The plumber’s invoice says “Fix drain $100; sales tax: $5.” So he charges $105 for fixing the pipe.
Consumers pay the sales tax, not the plumber or sheet metal company. Note what happened when Amazon started paying state income tax. They just added the tax to what the consumer paid.
If someone who earns a salary ends up in the hole for the year, it’s because he spent more than he earned. It’s not because he had to spend money earning his salary. He doesn’t pay rent on the building he works it. He doesn’t pay rent for the raw materials his company assembles into widgets. He doesn’t pay for the fleet of trucks that delver the widgets.
But he does spend his money on cars, meals, Las Vegas trips, golf, etc.
Note what happened when Amazon started paying state income tax.
That should say, “Note what happened when Amazon started paying state SALES tax.”
From a moral standpoint, from a spirit-of-the-law standpoint, large corporations should pay at least SOME taxes.
Is there a moral case for a company that losses money in a year to pay income taxes for that year?
Anyone know how much property tax Amazon paid?
If I make money from wages I have to pay taxes on them regardless of my financial position. If I engage in business, then I’m allowed to apply my losses to those taxes.
Why not simply say that businesses have to pay taxes on income, regardless of profit or loss? Where is the moral case for claiming that businesses should only pay taxes on profits? Can’t it be reasonably claimed a businesses profit or loss is *their* problem, and shouldn’t affect taxes?
If I wind up in the hole for a year I can’t reduce my tax burden. Why should a business get a different deal?
Dave – As one example, grocery stores often operate with a profit margin of just 1% or 2%.
Would you like to see food costs for the rich and poor skyrocket?
Every business that is going to continue must earn enough money to pay its taxes. A finance company named Sageworks studied the finances of a large number of physicians. The average physician’s office has a net profit margin of 13%.
Under your model, tax on gross income, the doctor wouldn’t be able to deduct the salaries of his/her medical and office staff. Or office rent. Or the cost of buying, operating and maintaining medical equipment.
Let’s assume the doctor grosses $1 million per year. At a 13% profit margin, this means the doctor earns $130,000 per year. How long would the doctor continue in business if he/she had to pay taxes on $1 million per year?
> If I make money from wages I have to pay taxes on them regardless of my financial position.
actually, depending on your situation, you can end up not only paying no taxes, but getting a check from the government for tax credits.
it all depends on what you earn, what you pay, and what deductions and credits you get.
The tax code allows you (under some conditions) to get credit for losses in one year against future taxes.
as fr as Amazon goes, I’m very sure that the IRS pays very close attention to their filings, looking for mistakes. The fact that they are not being taken to court for tax fraud means that they are not doing anything illegal.
There is, however, an alternative minimum tax (AMT) for individual taxpayers.
This was instituted in part in order to short circuit excess tax breaks that were based, or viewed as based, on convoluted legal strategies rather than sound financial principles–viewed as subverting the spirit of the law even while complying with its intent.
From a moral standpoint, from a spirit-of-the-law standpoint, large corporations should pay at least SOME taxes. Zero is morally unacceptable to most taxpayers–especially for a huge, profitable corporation (as opposed to a small or money-losing corporation–nobody’s hollering for Sears or B&N to pay taxes when they’re shrinking).
So, it would behoove the US to institute an AMT for corporations. That would save everyone a lot of grief. The corporations could reduce their fancy legal gyrations and structures, reduce the amount of money they pay rent-seeking legal firms, reduce the outrage of the citizenry, and contribute at least some small amount to the Treasury–as without a doubt, these corporations do consume government services of various types–infrastructure, police and fire, and so on, probably much more.
Any tax law you change will hurt other companies as much – if not more than it will Amazon.
“That would save everyone a lot of grief.”
What grief? No matter what Amazon does or does not do the ADS crowd will claim it’s in the wrong. Making a new tax law just because of some ADS whiners would be quite stupid.
“… as without a doubt, these corporations do consume government services of various types–infrastructure, police and fire, and so on, probably much more.”
And they do pay for them – every person working for them is paying their taxes – and a corporation is nothing if there’s no people. They even pay property taxes – or those they are renting the floor-space do, taxes on the cars/trucks and their fuel. Plenty of taxes – now if those playing with the tax money would quit wasting it …
You may notice that I said nothing about Amazon in particular. Amazon is merely the flagship for the no-tax corporate crowd.
I’m not anti-Amazon in any way, nor anti-capitalism. I own my own small business. You don’t need to be anti-Amazon merely to wish they pay their fair share.
In my business, I pay contractors. I also paid taxes of about 15% on my profits after all my allowable deductions–plus property taxes, sales taxes, fuel taxes, vehicle tax, state taxes, etc. etc. By your logic, I should pay 0% taxes merely because my business creates jobs.
If individuals are subject to an Alternative Minimum Tax, what’s wrong with the idea of a corporate Alternative Minimum Tax? That’s not an extra tax–it’s just a floor. The only corporations this would inconvenience are the ones who are somehow managing to contort their financial structures into avoiding all taxes.
If individuals are subject to an Alternative Minimum Tax, what’s wrong with the idea of a corporate Alternative Minimum Tax?
Better to simply eliminate the AMT for individuals. There is no reason to take a bad idea and expand it simply because it exists.
There’s where we disagree.
I believe the AMT is a good idea.
PG seems to think it’s badly executed, but I don’t see that bad execution makes it a bad idea, any more than failing to convict enough criminal makes prosecution a bad idea.
Well, what’s the AMT idea? Is it the idea behind AMT when it was instituted in 1982, or is it the resulting implementation we see in 2019?
Which do you advocate?
If you perform a Google search (at least in the US) with “how to avoid the alternative minimum tax,” you’ll see lots of strategies for keeping it out of your life.
By which you mean…what?
If you’re implying there’s no point to such an idea, merely because people can often avoid it, that’s no argument at all. Rather like saying that because there are strategies for avoiding moving violations, we should have no traffic laws.
If people can often avoid a tax, I suggest it’s not very good tax policy, David. Why not have taxes people will pay?
One of the problems with the current federal tax system is that it is so complex, unintended consequences and undiscovered loopholes are virtually unavoidable.
According to the National Taxpayer Advocate, there were 4 million words in the Internal Revenue Code and Regulations in 2012. Given the amount of money some people pay in taxes, it’s worth their money to hire very smart accountants and lawyers to minimize those taxes.
In 4 million words organized into very complex sentences and paragraphs, there are lots of ways of saving tax payments while staying within the law. If you compare the brain power of the members of Congress and the people who write the IRS regulations with the combined brainpower of the accountants and lawyers that taxpayers hire to help minimize taxes paid, there is no comparison. There are over 650,000 CPA’s in the US. There are 177,000 lawyers in New York (not all of whom are tax attorneys).
If annual income taxes payable were in the range of fines for moving violations, few people would bother to pay money to avoid moving violations.
On the other hand, if the fine for each moving violation was a minimum of $100,000, you would see all sorts of innovative methods to ensure drivers would never get ticketed.
The fact that something can be avoided does not invalidate it.
The fact that something is badly constructed does not invalidate its purpose, only its execution.
I can avoid a traffic barrier, but that neither makes it right or desirable that I do so. If the traffic barrier is badly constructed, that doesn’t give me leave to push through it, as its purpose is clear and I’m violating its purpose.
The purpose of the AMT is to provide a minimum tax. If someone manages to avoid the minimum tax, its purpose is being violated on a technicality.
I haven’t paid taxes for a couple of years now – an out-of-work-bum, you see.
Happily, I have some (already been taxed once, thank you) savings to live off of, as my ebook sales hasn’t hit four digits any year so far.
But you think ‘I’ should still be paying some ‘minimum tax’?
Morality and the law parted company long ago. The only thing Amazon is ETHICALLY required to do is what the law demands. There is no moral argument here.
And yet the title of the article is “Amazon’s tax, financial and moral obligations.”
And there’s moral arguments happening.
It’s aways funny when people comment without reading the actual thing they’re commenting on.
Ah, but that’s the joke in the title, no person or company has any ‘moral’ obligation to pay more than they have to for anything – including taxes.
Next you’re going to tell me I’m morally obligated to go out and buy a Ford because their ads used to claim that they were ‘the best in Texas’. 😉
It’s always funny when obtuse people post snarky comments like they actually know what they’re talking about. Yes, I read the article, I am disagreeing that paying taxes is a moral obligation. Is that clear enough for you?
Maybe someone can outline the moral argument? I haven’t seen it.
Do the interests of those New Yorkers who think the city and state were giving too much away to Amazon trump the interests of all the people who benefit from the continuing health of Amazon’s business?
An equally important question is whether the interests of the activists trump the interests of all their fellow New Yorkers?
The activists are still trying to figure out what to do when they get what they demand, because what they demand is the last thing they actually want.
So, a bit like some of the BRExit crowd. 😉
i think Brexit is fat more equally divided.
One does get VERY tired of the financially innumerate mob.
The only reason this even saw the light of day was because it would wind up the ADS types – and more eyes means they make more money selling ads …
Very nice. Mind if I forward this to New York’s 14th congressional district?
Dan
P. S. Just kidding…she wouldn’t understand, anyway.
Thanks, Dan.