Many on the Left continue to obsess over Amazon’s zero federal corporate income tax liability.
Cory Booker and Andrew Yang both criticized the company during the first Democratic presidential primary debate while Joe Biden, Bernie Sanders, and Elizabeth Warren have all attacked the company this year.
More recently, an article published in the Verge argued we deserve to see Amazon’s tax returns because of the company’s low tax liability. On several occasions, this article implies that companies are using loopholes to lower their taxes and that transparency would curb this. This “solution” is inevitably paired with higher taxes, whether it is through increasing the corporate rate above 21% or by imposing new taxes on businesses.
New “transparency” measures are unnecessary as there are already stringent controls in place to ensure companies file their taxes as required by law. Over 30,000 IRS employees are dedicated to “examinations and collections,” or 40% of the agency’s entire workforce. According to recent IRS data, large corporations (those with a balance sheet of $20 million or more) have a roughly 50% chance to be audited in a given year, while individual taxpayers have a 0.6% chance to be audited. This means that corporations are nearly 84 times more likely to be audited.
Companies are required to make quarterly estimated payments and file annual returns, and there are numerous penalties for failing to follow this system including penalties for underpaying, penalties for late filing of return, negligence, substantial understatement of tax, and fraud.
In addition, publicly traded companies are already required to file with the SEC and these filings are precisely the reason the media knows that Amazon had no tax liability and which provisions they took to zero out their liability.
The goal of the Left is to erode taxpayer protections, not to inform the public debate. Just 10% of taxpayers believe the IRS is not devoting enough resources to enforcement and the tax laws were put in place deliberately by Congress and on a bipartisan basis.
Instead, the goal is public shaming that will be the justification for increased government control and the ability to target taxpayers.
Subjecting businesses like Amazon to undue public scrutiny will violate the Taxpayer Bill of Rights — the enshrined set of guarantees that the IRS gives to every taxpayer including individuals and businesses.
The Taxpayer Bill of Rights guarantees a right to privacy, meaning enforcement actions will be no more intrusive than necessary, and a right to confidentially, meaning that sensitive information will not be unnecessarily disclosed.
It is worth noting that Amazon’s low tax liability is not a secret, and it is not nefarious so new transparency measures would not change anything. The company is paying taxes: They owe $322 million in state taxes and paid the government the 6.2% Social Security and 1.45% Medicare payroll taxes for its more than 200,000 employees.
However, their federal corporate liability is zero because they used several bipartisan tax deductions and credits which were designed to promote investment and growth:
- The research and development credit, which allows companies to quickly recover the cost of expenditures for research and experimentation. This credit has bipartisan support — it was first created under President Ronald Reagan and was routinely extended and then made permanent by Congress with the support of President Barack Obama.
- Full business expensing, which allows companies to deduct the cost of new equipment purchased. In the words of the Obama White House, expensing allows businesses “to expand or hire new workers right now, and provides a strong incentive to increase investment now, creating even more jobs.”
- Carry forward of Net Operating Losses from previous years.
- Deductions for stock compensation granted to employees. As noted by Bloomberg, the stock compensation deduction may leave the government better off because the income is taxed at a higher rate (the 37% top individual rate rather than the 21% corporate rate).
While Democrats will undoubtedly continue attacking companies for taking legal credits and deductions, the law is working as intended. These tax provisions are working because companies are investing in the jobs and the economy. Any effort to impose “transparency” in this system will only expand the size of government and erode taxpayer protections.
Alex Hendrie is the director of tax policy at Americans for Tax Reform.
