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a good place to start is understanding economic incentives. Incentives, in laymen’s terms, sound like free money. Incentives, to an economist, operate as a lever to generate a better result which offset the cost. Taxes are one such lever.
If you look at the Internal Revenue Code, as one CPA cites, less than 1% of it is dedicated to revenue generation. The majority, in fact, is on tax deductions.
“There are only about 30 pages in the Code that actually raise revenue…[T]here are about 6,000 pages that tell you how to reduce taxes through tax deductions, tax credits and other incentives.”
In 2018, Amazon paid $0 in U.S. federal income tax on more than $11 billion in profits before taxes. It also received a $129 million tax rebate from the federal government.
Amazon's low tax bill mainly stemmed from the Republican tax cuts of 2017, carryforward losses from years when the company was not profitable, tax credits for massive investments in R&D and stock-based employee compensation.
Amazon invests heavily in research and development and therefore benefits from that tax credit. In 2017, Amazon topped the list of U.S. companies in R&D spend, at $22.6 billion. #2 was Alphabet at $16.6 billion. Many of Amazon’s innovations have been birthed from this investment.
Amazon’s investment in property, plant, and equipment also makes it eligible for tax credits. Cities can benefit from Amazon’s investment in real estate and job creation.
Amazon’s PPE expenditure has steadily increased over the last five years, netting to $60 billion as of 2018
Amazon’s PPE expenditure has steadily increased over the last five years, netting to $60 billion as of 2018
Amazon largely pays no corporate tax because it reinvests those profits into its operations. Scenarios where Amazon had no corporate tax breaks, it would disincentive them from reinvesting and thus creating greater opportunity for the businesses and cities in which it operates.
Large companies like Amazon reinvesting their money has a greater benefit on society as a whole. This is why they pay little to no taxes.
