Amazon owes ZERO... Wait Negative Taxes.
In December 2017 as President Trump signed into law the Tax Reform bill which the GOP controlled Congress muscled through both the House and Senate, I looked at the bill and wrote a short piece that attempted to provide a quick assessment of the claims being touted that the reform was good for the US economy. My assessment of the Tax Reform law for corporations is being borne out.
I wrote at the time that in view of the fact that the average effective corporation tax rates that corporations faced under the old 35% statutory rate was about 18.6%, that "(t)his move therefore potentially reduces the effective tax rates to a much lower rate despite the repealing of some of the deductions and credits under the current law, such as the domestic production activities deduction and the limits put on net interest deductibility". So it is not surprising that even though Amazon paid negative taxes of about $137 million (i.e got a refund) under the old law for 2017, they are paying negative taxes of $129 million (i.e. getting a refund) under the new law despite having doubled their profits in 2018 to $11.2 billion.
I think there are two very important questions that need to be asked at this juncture and they may not be the ones expected.
First, as we have been made aware, a huge part of the tax credit obtained by Amazon and which many corporations use to reduce their effective tax rates is through the paying out of executive stock options. This effectively reduces their taxable profits, but it also does not generate taxable income elsewhere since it is tied up in stocks. So the question here is, how does this provision which lets everyone off the hook and creates a mirage in the stock market generate economic growth when clearly it is implicitly helping boost our deficit (through reduced government revenues) and resulting higher federal debt which has now climbed above $22 trillion?
Second, when thinking about taxes in the context of the provision of a public good (a good or service that is characterized by joint consumption), the theoretical analysis calls for Lindahl prices which are difficult to actualize in practice as they require every entity to provide information about their private valuations of the public good: since this is going to be linked to their tax liability but they can benefit from the public good by free-riding once it is provided at any level, they may not truthfully reveal their true valuation. So we have to leave the government to provide the public good at the estimated efficient level and fund it from general tax revenues.
However if we were to think about the "market system" as the mother of all public goods in that it allows for the continuation of a stable economy, and we were to infer the private valuation all entities have towards its provision from their earnings, then one may see that those who benefit the most from the system should have a high valuation for its continuity (that is to avoid any instability from say social unrest from the erosion of social capital). So even in our not appealing to any notion of social justice but to good old economics, how can a trillion dollar entity face a negative Lindahl price when it clearly enjoys the provision of a public good it values much highly than pretty much the rest of society?
A lot is therefore wrong with the existing tax system and while proponents of the tax reform will point to the fact that the economy has continued to expand, with the relatively slow growth in wages and the massive windfall in profits that corporations are seeing, it is clear this is an uneven tide lifting prime boats a whole lot higher than others.