FedEx paid no federal income tax in 2018.
The New York Times wants you to think that this fact is a stunning indictment of President Trump’s Tax Cut and Jobs Act, which reduced the corporate tax rate to a globally competitive 21%, nearly the same as that of the European Union.
It’s not. In fact, not only is it not a slight against FedEx for benefitting from the cuts, but as the delivery giant pointed out in a scathing response to the Times, it’s a complete self-own.
In 2017, FedEx owed $1.5 billion in federal taxes, or a 34% effective tax rate. That same year, prior to any provision of the tax act going into effect, retorted Fred Smith, FedEx chairman and founder, the New York Times paid not one dime of federal taxes. (The Times did not dispute Smith’s claim.)
In a scathing response to the Times report that FedEx slashed its tax bill without equivalently increasing its capital investment, Smith lambasted the hypocrisy of the Times.
“In 2018 the New York Times cut their capital investments nearly in half to $57 million, which equates to a rounding error when compared to the $6 billion of capital that FedEx invested in the U.S. economy that same year,” Smith wrote. He then challenged Times publisher A.G. Sulzberger and the business section editor to publicly debate “federal tax policy and the relative societal benefits of business investments and the enormous intended benefits to the United States economy, especially lower and middle class earners.”
Contrary to Smith’s tease that the story was “factually inaccurate,” the true crime of the Times piece was its apparently deliberate lack of context, which misinformed the reader. The point of the tax cut and reform measure was specifically to diminish tax considerations in business decisions. Nobody “owes” the economy anything in exchange for the tax cut they got. It’s simply a non sequitur to judge a company in this manner based on what it does with its tax cut.
So no, FedEx’s capital investment wasn’t necessarily proportional to its tax cut, but the company created 58,000 new jobs in 2018, bringing its total employment to nearly a quarter-million. The Times paid zero taxes in 2017, and how many net jobs did it create? The answer appears to be 80.
Meanwhile, the Times criticizes FedEx for buying back billions of dollars in its stock in the short term. But there is ample evidence that stock buybacks prepare firms for sustained increases in investment. They also allowed shareholders, especially pensioners who suffered through the bad times when FedEx stock lost half its value during the financial crisis, to take profits.
Although the Times report clearly irked FedEx, Smith probably wouldn’t wish to punish the New York Times with a tax increase. He advocated for the corporate tax cut in the first place because it benefits everyone, not just individual shareholders, through broad economic growth.
The value of FedEx isn’t just in its share price, either. It comes in the form of innovation and reduced prices that benefit hundreds of millions of customers. The economic value of the Times may be a lot smaller, both as a private company and one that employs fewer people, but there’s no doubt that the country is better off with a tax code that allows the Times to turn a profit while very modestly increasing employment.
Surely, the tax cut bill wasn’t perfect. But it’s time for us all, media naysayers included, to admit that a corporate tax cut that repatriated over $60 billion in profits in its first year, increased foreign investment, and pushed unemployment to its lowest rate in half a century is an unequivocal victory.
