Low taxes for companies is a facet of Reaganomics. courtesy Wikimedia Commons

Amazon tax loophole preventable with future reform

Amazon paying zero taxes last fiscal year is a result of Reagan-era economic philosophy.

Amazon’s tax bill for income this year will have them forking over the hefty sum of zero dollars. That’s right, one of the world’s three most valuable companies will give back zero percent of its $11 billion profit via federal corporate taxation in 2019. When this news broke a few weeks back thanks to the Institution on Taxation and Economic Policy, it was hard to understand how such a behemoth of a corporation could get away without any taxes levied. But thanks to news sites like Vox, the loophole(s) was explained. What the loophole and Amazon’s use of it proves is that the United States government cannot afford to continue working under an archaic tax structure that does not serve the country’s need.

First and least surprising, Amazon makes good use of the R&D tax credit that lessens the taxes a company has to pay when they are investing a significant amount of money into developing new technology that could help more than just their bottom line in the future. Second, the Trump tax bill gave some help to this astoundingly low figure by offering a 100 percent tax deduction for money that companies spend on equipment. Although the tax reform bill was effectively corporate welfare that found ways to line the pockets of board members, it was not the main reason Amazon paid no income tax.

Amazon paid no income taxes because they used a loophole from the 1990s that was meant to curb the grossly outsized profits that executives were beginning to make. The Clinton White House was able to pass Section 162(m) of the U.S. Tax Code, which made all salaries over $1 million taken home by executives non-deductible. The only exception to this was if compensation packages to people high up in the businesses were paid in stock options or something similar. Fast forward to 2019, and Amazon has used this loophole to lower their taxes by continuously issuing more shares as their income has grown. They have turned a mechanism meant to stop inter-corporation inequality into an effective tool for exacerbating it.

Amazon’s low income tax factors into a larger political battle over the taxes companies should be paying. Since Ronald Reagan’s presidency, the Democratic Party has been trying to resist the push to lessen taxes and cut government essential government programs. Two failing methods of resistance come from what I will call the Clinton appeasement plan and the Congressional Democrat piecemeal plan. In the ’90s, the Clinton White House thought that continuing New Deal liberalism would be a losing strategy, and that playing into the Republicans’ game with a liberal flair would work better. By offering to cut taxes in different places than Republicans or cutting different programs altogether, this method inadvertently helped the GOP accomplish their dual goals of weakening the United States tax system and cutting programs that do not benefit their personal interests.

The Congressional Democrat piecemeal plan does not attempt to beat Republicans at their own game, but it instead tries to undo the anti-tax small government system the Clinton and Reagan White House built over the course of 20 years. It often does well at fixing one problem, but its flaws are as vast, if more well intentioned, than the Clinton plan. It may do away with one Reagan-Clinton era loophole just to see another become more widely used in its place, or even see its successes repealed by a successive conservative majority. This is why a full-fledged progressive tax overhaul is the only thing standing between the U.S. and destructive economic calamity as more companies expose the loophole that Amazon used.

Without a tax system that the U.S. government can utilize to make large corporations pay for those at the bottom of the economic ladder, corporations will continue to run rampant and leave untold economic inequality in their wake. It is hard to imagine the kind of details that a new and progressive tax code would imply, but taking hints from the last time the American state truly sought to fight economic inequality would be a good starting place.

In the last 20 years, conservative politicians and corporate leaders have been unafraid to propose laughable tax plans that reward them with gross amounts of money. Similarly, a progressive tax code should make every suit on Wall Street anxious the day it hits the House floor, much like the New Deal did. A plan like Representative Alexandria Ocasio-Cortez’s 70-percent marginal tax rate, which was too much for the lofty mind of Republican House Whip Steve Scalise to comprehend, would do just that. By taxing all income above $10 million at a 70-percent rate, it would stop the stockpiling of funds that occurs when money ends up in the hands of people who can afford to save all of it. Instead, it could be used to prevent emergencies and benefit society, which is what AOC was referring to when she mentioned it. There would obviously be loopholes to such a provision, but a progressive tax system would never cease in trying to close loopholes once they have been used.

There will be numerous tax propositions made in the next few years, and many will sound outlandish, but we have all grown up in a Reaganite America where any increase in taxes is meant to sound like a national emergency. Instead, we should be willing to bring back the tax provisions that helped America get to its most economically egalitarian point in the middle of the 20th century. If we do not, then Amazon will become the next Walmart and exert the kind of lobbying force on Congress that can help it get the tax code that best aids its interest instead of the American people.

Post Author: Chris Lierly