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Amazon E-commerce pick up store.Getty
Amazon's recent decision to withdraw New York's New York headquarters has revived an earlier debate over why the company does not pay taxes. A graph, for example, & nbsp;product by Mona Chalabi, a journalist specializing in data, and later shared by a member of the House of Representatives, Alexandria Ocasio-Cortez & nbsp; among others,& nbsp; presents two superimposed graphs comparing Amazon's fast-growing earnings to its negligible taxes & nbsp; in the last nine years.
The comparison is striking. And also misleading. & Nbsp; Tyler Cowen, one of the most influential economists of the day, wrote& nbsp; on his website Marginal revolution,& nbsp; "Regarding the discussion on Amazon and taxes, I can only sigh …."
What is the purpose of a tax?
First, a glance at the financial state shows that there & nbsp; pay taxes. In 2017,& nbsp; Amazon paid close to $ 1 billion in income tax. In 2018, the amount climbed to $ 1.18 billion. The heavy sum represents local, national and international taxes of Amazon.
It is true that during those same years, Amazon has not paid & nbsp; federal taxes. (It is strange to think that I paid more tax last year than Amazon.) But before shouting at the bias, it is helpful to understand why. & Nbsp;A closer look at the underlying economic data shows that the only review of Amazon's profits versus corporate taxes is too simplistic, as a model. & Nbsp;
Instead, a good starting point is to understand the economic incentives. & Nbsp; Incentives, in simple terms, & nbsp; looks like free money. For an economist, incentives act as a lever to generate a more optimal outcome, such as increased economic activity. Taxes are one of those levers. Taxes are too often interpreted only by their first-order effect of generating revenue, rather than by the second-order effect of & nbsp; stimulate economic activity. & Nbsp;
If you look at the internal revenue code, as a CPA citesless than 1% of it is dedicated to income generation. The majority, in fact, relates to tax deductions. "There are only 30 pages in the code that actually generate revenue …[T]Here are about 6,000 pages that tell you how to reduce taxes through tax deductions, tax credits and other incentives. "
Tax deductions can be categorized incorrectly as & nbsp;"Capitalism of cronyism."& nbsp; However, tax deductions, tax credits and other incentives play a driving role & nbsp; important for organizations to then stimulate economic activity, job creation and innovation.
Amazon tax breaks and underlying incentives
There are three main factors of Amazon's tax relief:
- Investment in research & amp; Development. Amazon & nbsp; invests heavily in research and development and therefore benefits from the tax credit. In 2017, & nbsp;as Recode said, Amazon tops the list of US companies in R & D spending, with $ 22.6 billion. Alphabet ($ 16.6 billion). & Nbsp; Many Amazon innovations have been created from this & nbsp; investment.
- Investment in real estate, facilities, & nbsp; and equipment. & nbsp;Amazon's investment in tangible fixed badets also allows it to & nbsp; benefit from tax credits. Cities can benefit from Amazon's investments in real estate and job creation (benefits that could have benefited New York). D & # 39; Amazon PPE expenses has grown steadily over the past five years, reaching about $ 60 billion by the end of last year.
- Remuneration of employees' shares. The third driver of its tax breaks is moving from cash compensation to stock-based compensation for employees. Tax deductions increase as the stock increases. While this may certainly create adverse incentives, it is important to evaluate the benefits that this creates in relation to cost. Such a tax policy can introduce misaligned incentives on the part of management, but it also encourages management to generate the best return for investors. & Nbsp; & nbsp;
Amazon pays largely no business precisely because it reinvests these profits into its activities. In a scenario where Amazon would not benefit from any tax breaks, it would deter the company from reinvesting, which would create better opportunities for the companies and cities in which it operates. & Nbsp;
Taking the lead in fighting Amazon's corporate tax cuts is fine if the argument is based on sound economic reasoning. The risk is that, too often, the data is taken out of context and the scenarios are not accurate, and that data is gaining speed and speeding up unnecessarily.
The building's impulse to demolish existing economic structures without thoroughly explaining why these structures even exist could put us in an even more difficult situation. & Nbsp; The question to be addressed is not why Amazon does not pay taxes, but under which tax structure can we be better?
FFollow Stephanie Denning on Twitter:& nbsp;@stephdenning
And also read:
Why Amazon's decision to withdraw from New York is a loss
The strategic move of Amazon in Split QG2
& nbsp;
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Amazon E-commerce pick up store.Getty
Amazon's recent decision to withdraw New York's New York headquarters has revived an older debate over why the company pays "no taxes". other, shows two superimposed graphs comparing Amazon's fast-growing earnings to its negligible taxes over the last nine years.
The comparison is striking. And also misleading. Tyler Cowen, one of today's most influential economists, wrote on his website Marginal revolution, "As for the discussion on Amazon and taxes, I can only sigh …."
What is the purpose of a tax?
First, a quick look at Amazon's financial statements shows that it pays taxes. In 2017, Amazon has paid close to a billion dollars in income tax. In 2018, the amount climbed to $ 1.18 billion. The heavy sum represents local, national and international taxes of Amazon.
It is true that those same years, Amazon did not pay federal taxes. (It is strange to think that I paid more federal tax last year than Amazon.) But before shouting at bias, it helps to understand why. A closer look at the underlying economic data shows that limiting oneself to Amazon's profits in relation to corporate tax is too simplistic.
Instead, a good starting point is to understand the economic incentives. The incentives, in simple terms, sound like free money. For an economist, incentives act as a lever to generate a more optimal outcome, such as increased economic activity. Taxes are one of those levers. Taxes are too often interpreted only by their first-order effect of generating revenue, rather than by the second-order effect of stimulating economic activity.
If you look at the Internal Revenue Code, as a CPA says, less than 1% of it is dedicated to revenue generation. The majority, in fact, relates to tax deductions. "There are only 30 pages in the code that actually generate revenue …[T]Here are about 6,000 pages that tell you how to reduce taxes through tax deductions, tax credits and other incentives. "
Tax deductions can be incorrectly clbadified as "Capitalism of cronyism." However, tax deductions, tax credits and other incentives play an important role in stimulating economic activity, job creation and innovation by organizations.
Amazon tax breaks and underlying incentives
Amazon's tax breaks are mainly related to three benefits:
- Investment in research and development. Amazon invests heavily in research and development and therefore benefits from the tax credit. In 2017, as mentioned by Recode, Amazon was at the top of the list of US companies in research and development spending, with $ 22.6 billion. Alphabet, with $ 16.6 billion Many of Amazon's innovations arose from this investment.
- Investment in tangible badets. Amazon's investment in property, plant and equipment also entitles it to tax credits. Cities can benefit from Amazon's investments in real estate and job creation (benefits that could have benefited New York). Amazon's PPE expenditures have steadily increased over the past five years, reaching approximately $ 60 billion by the end of last year.
- Remuneration of employees' shares. The abandonment of cash compensation in favor of employee-based compensation is the third factor in reducing taxes. Tax deductions increase as the stock increases. While this may certainly create adverse incentives, it is important to evaluate the benefits that this creates in relation to cost. Such a tax policy can introduce misaligned incentives on the part of management, but it also encourages management to generate the best return for investors.
Amazon pays largely no business precisely because it reinvests these profits into its activities. In a scenario where Amazon would not benefit from tax breaks on companies, it would deter the company from reinvesting, which would create better opportunities for the companies and cities in which it operates.
Taking the lead in fighting Amazon's corporate tax cuts is fine if the argument is based on sound economic reasoning. The risk is that, too often, the data is taken out of context and inaccurate scenarios encircling the data gain momentum and accelerate unnecessarily.
The building impulse to demolish existing economic structures without a solid foundation on why structures even exist could put us in a worse situation. The question is not why Amazon does not pay taxes, but under what tax structure could we be better off?
FFollow Stephanie Denning on Twitter: @stephdenning
And also read:
Why Amazon's decision to withdraw from New York is a loss
The strategic move of Amazon in Split QG2
