Amazon generates a ton of value to consumers each day from diapers delivered to your doorstep in one click to tv shows and movies streamed to your big and small screens at any time.
Lately, wealth inequality crusaders have been bashing the online retail giant. The latest news to stoke their ire is that the company reportedly paid zero taxes for the past two years.
This generated a ton of headlines and even liberal New York Congresswoman Alexandria Ocasio-Cortez (AOC) piled on, tweeting:
“$0 for schools.
$0 for firefighters.
$0 for infrastructure.
$0 for research and healthcare.
Why should corporations that contribute nothing to the pot be in a position to take billions from the public?”
Before you ditch your Amazon prime membership in protest, let’s look at the facts, because AOC and others get some things wrong here.
Amazon did report that it paid no federal taxes in 2017 and 2018 and was even due a rebate.
Individuals and corporations look to minimize their tax liability by utilizing incentives built into the tax code. This is not cheating as some might describe it.
For example, Amazon took advantage of tax credits that encouraged it to plough earnings back into research and development to make the company better at delivering the goodies we rely on.
Perhaps the two biggest benefits that reduced Amazon’s federal tax bill were the temporary deduction for depreciating assets like equipment and the deduction for stock-based compensation from their taxable earnings.
The first change is meant to stimulate economic growth — increasing GDP and in the long run bumping up wages and adding new jobs, according to the Tax Foundation.
The latter is meant to encourage good performance among corporate leaders.
Over the past two years, Amazon’s profitability skyrocketed driving their share prices higher. Higher share prices led to a bigger deduction, but a smaller federal tax bill.
As Matthew Yglesias explains for Vox:
When a company’s share price goes up a lot, the value of stock-based compensation rises as well. That’s by design. Part of the goal of stock-based compensation is to make sure you are paying executives for performance — or at least guaranteeing that rank-and-file workers will share in the prosperity of the company’s shareholders. But this means that in accounting terms, when a company’s share price goes up a lot — as it might if, say, it successfully doubled profits — the value of the tax deduction for the stock-based compensation also goes up a lot.
Just because Amazon reduced its corporate, federal tax liability, doesn’t mean it didn't pay any taxes whatsoever or that it drained government coffers of money for the kids and roads as AOC intimated.
Amazon reportedly owed $322 million in taxes to state governments and another $563 million to other countries. And of course it paid the employer portion of the payroll tax for all of its over two hundred thousand workers.
Corporations, small businesses and individuals all leverage the tax code to lower their tax liability and free up their resources for other purposes. Those other purposes often greatly benefit society, by creating jobs and enabling research and innovation, which is something policymakers should not forget.