Opinion: Trump is right: Jeff Bezos is a genius at not paying taxes

It’s not the negative coverage he receives from the Washington Post that makes President Donald Trump so angry with newspaper owner Jeff Bezos and that other company he runs, Amazon.com.

Donald Trump is simply jealous of Jeff Bezos.

Not only is Bezos the richest person alive, but Bezos is also so much better than Trump at two things Trump is proud of: avoiding taxes and making one-sided deals.

It must irritate Trump that Bezos is getting away with so much. Trump has repeatedly tweeted that Amazon AMZN,
does not pay any sales tax on the things it sells. And he complained that Amazon is so good at the art of transaction that the U.S. Postal Service is losing money on every one of the millions of packages it delivers for the online retail giant.

You don’t have to be an Einstein or Bezos genius to know that helping customers avoid paying sales tax was Amazon’s killer app.

Trump is wrong about the La Poste contract (he does not lose money with each delivery). And he is (mostly) wrong about the sales tax too.

But he’s on to something here: Amazon is really good at avoiding taxes. So good that Amazon’s phenomenal success owes as much to tax evasion as it does to free shipping.

You might think Trump would praise Bezos for his tax avoidance ingenuity. Remember during the debate with Hillary Clinton when Trump said he paid no federal income taxes for at least a year in the 1990s. “makes me smart”?

Well Jeff Bezos must be a genius if this is how we measure intelligence.

Trump is wrong to say that Amazon does not pay sales taxes; it collects and remits sales taxes in all states that have one. But it’s a relatively recent change in Amazon policy. For years, when Amazon struggled to compete with more established retailers, its main competitive advantage was the fact that it did not collect sales taxes.

Trump praises Bezos

Amazon was acting legally by not collecting sales tax. In Trump’s words, “it made Bezos smart.” Due to a loophole in federal law, online or catalog companies that do not have a physical presence in a state (a “link”) are not required to collect tax due in the same manner as companies. traditional retailers are required. at. The customer is still obligated to pay sales tax on such purchases, but in the real world, no one ever does.

Thus, Amazon could afford to price its products cheaper than a physical store. Assuming state sales tax is 5%, Best Buy BBY,
+ 0.01%
would have to charge $ 420 for a $ 400 TV ($ 400 for the TV plus $ 20 “for the Governor.”) But Amazon could charge $ 400 for the same TV if it wanted to maximize sales. Or it could price it at $ 419 and collect an additional $ 19 in pure profit that Best Buy was unable to.

You don’t have to be an Einstein or Bezos genius to know that helping customers avoid paying sales tax was Amazon’s killer app. Here is a research paper in economics it says the same thing.

By the way, Amazon still doesn’t collect local sales taxes (which make up about a quarter of tax revenue collected nationally). Amazon also does not collect sales tax on sales made by third-party companies that sell through Amazon’s online portal. Amazon still earns a lot of revenue by avoiding sales taxes.

Amazon avoids $ 20.4 billion in sales taxes

Dean Baker and Evan Butcher did an approximate calculation showing that if Amazon had always been required to collect sales taxes, it would have collected a total of $ 20.4 billion in sales taxes since its founding from 1994 to 2015, which is more than double its lifetime profits of approximately $ 9.1 billion.

But wait, there is no more tax evasion!

Amazon pays virtually no federal income tax. Part of the reason for this is his strategy of avoiding making a profit for years, preferring to reinvest everything back into the business. But part of Amazon’s low tax rate is the result of aggressive tax planning.

In October 2017, the European Commission ruled that Luxembourg had improperly authorized Amazon to avoid tax on around three quarters of its European profits, and ordered Luxembourg to recover around $ 294 million from Amazon. After his investigation, Newsweek concluded that “Amazon’s success is due in large part to the tax advantages it has created in Luxembourg”.

In 2017, Amazon paid no federal taxes on $ 5.6 billion in U.S. profits, according to an analysis by Matthew Gardner at the Institute on Taxation and Economic Policy. In the previous five years, Amazon paid an effective rate of 11.4% on its $ 8.2 billion profits, about a third of the legal rate, Gardner said.

“More than any other company I can think of, Amazon seems to have built its profit maximization strategy by avoiding taxes at different levels,” Gardner said. Alex Shepherd of The New Republic, who concluded that “Amazon has used local, state and federal tax laws to its advantage, while doing everything in its power to avoid making a profit. “

Tax incentives

Amazon is also an expert in playing state and local governments against each other, demanding large grants for the honor of hosting an Amazon installation. According to a conservative estimate by Good Jobs (an advocacy organization), Amazon received about $ 1.4 billion in tax incentives.

All that money doesn’t really buy anything from a community. The Economic Policy Institute looked at domains that had won bids to host Amazon warehouses and found that while warehousing jobs increased by 30%, total employment was stable in the community.

Richard Florida came to the same conclusion after investigating the benefits of some $ 45 billion in local tax incentives for “economic development”: Providing tax breaks for businesses is worse than unnecessary.

And now Amazon is embarking on an even more outrageous stunt, pitting major cities against each other in a “Hunger Games” type competition to seize the second site of the head office of Amazon and its 50,000 jobs promised. Amazon has made it clear that tax incentives will be important in the final selection, and cities are scrambling to outbid.

Newark, NJ, is offering Amazon a package worth up to $ 7 billion, while Montgomery County, Md., Just increased his bribe to $ 8.5 billion. Etc.

Amazon is not alone in these tax evasion tactics. Almost all businesses try to minimize their tax burden, and many of them cross the line every now and then. So why doesn’t Trump tweet about Walmart WMT,
+ 2.71%
extort money from cities, or about FedEx FDX,
+ 0.15%
for standing firm when negotiating with the post office or Apple AAPL,
+ 0.46%
to outsource its profits to Ireland?

What is his obsession? Yeah, it’s probably because Bezos owns The Post. But I still believe that jealousy plays a role. Trump may be president, but Bezos is the king of the world.

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About Jon Moses

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