Amazon Takes Over the World (Wall Street Journal)

Amazon’s strategy of break-even operations also means that it has virtually no profits to tax. Since 2008, Wal-Mart has paid $64 billion in federal income taxes, while Amazon has paid just $1.4 billion. Yet, while paying low taxes, Amazon has added $220 billion in value to the stock held by its shareholders over the past 24 months—equivalent to the entire market capitalization of Wal-Mart.

Something is deeply amiss when a company can ascend to almost a half trillion dollars in market value—becoming the fifth most valuable firm in the world—without paying any meaningful income tax. Does Amazon really owe so little to support public revenue and public needs? If a giant firm pays less than the average 24% in income taxes that the companies of the S&P 500 pay, it logically means that less-successful firms pay more. In this way, Amazon further adds to the winner-take-all tendencies plaguing our economy.

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8 Responses to No Profit, No Taxes

  1. Oscar Gordon says:

    I didn’t click through, but that blurb strikes me as incredibly blinkered by the other benefits Amazon adds and pays.

  2. I’m not an expert on stocks or taxation, but aren’t shareholders taxed on dividends and on net gains when they sell (assuming they don’t sell at a loss)? I’d imagine any reckoning of whether Amazon pays its fair share has to take that into account. (And maybe the linked to article actually does. Like Oscar, I read only the blurb.)

    • Brandon Berg says:

      That’s correct, although note that Amazon doesn’t pay dividends. As a rule of thumb, companies don’t pay dividends unless they have profits. The primary exception would be dividends issued when liquidating a company. I think that’s taxed as a capital gain or loss, depending on whether the dividend is greater than the price you paid for the shares.

  3. Brandon Berg says:

    This guy is like the farmer who killed the goose that lays the golden eggs. Unless it’s just a bubble, the increase in Amazon’s market capitalization reflects expectations of future profits. When Amazon reaches the limits of its growth potential and starts paying dividends instead of reinvesting profits, the IRS will get its pound of flesh. Even disregarding the advantages of more investment (higher wages), the IRS still comes out ahead this way as long as Amazon can earn a better return on its investment than treasury securities.

    Arguably the worst possible thing a tax can do is reduce investment, and that’s exactly what taxing a company that’s reinvesting all its profits would do. There’s a pretty good argument for not taxing investment income at all (Chamley-Judd), and the corporate income tax is even worse than taxes on personal investment income (because it encourages investors to invest in other countries), but taxing reinvested profits is turning the stupid up to 11. AFAIK, no country does that, and for good reason. If anything, government is too strict about the deductions it allows for reinvestment (i.e. depreciation schedules).

    • Oscar Gordon says:

      Seriously! I wish more companies would dedicate more profit toward higher pay and reinvestment. The author acts like the government gets nothing from Amazon turning a bare profit. The IRS get’s it’s cut, just not directly from Amazon. It comes out in the form of taxes on higher wages, and sales taxes, and increased economic activity, and probably a dozen different things I’m not thinking of.

      If you added it all up, I bet Amazon generates more tax revenue than if it just paid corporate taxes like Facebook.

      I almost wish the article wasn’t behind the paywall just so I could read the comments.

      • KenB says:

        In case your almost wish turns into an actual wish — you can get around the paywall by going to Scott Galloway’s Twitter feed and clicking his link to the article.

  4. Brandon Berg says:

    Also, comparing Amazon to Walmart is misleading, because Walmart is in profit-taking mode and Amazon is in growth mode. If Walmart could profitably reinvest all its profits, it would almost certainly be doing so, but it just doesn’t have the capacity to grow that quickly. I suspect that many other quickly-growing companies have done something similar.

    It’s interesting to juxtapose this with the recent hysteria over share buybacks, where corporations get crap for not reinvesting their profits. You can’t win.

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