Corporate tax avoidance: is the tax money lost and gone forever?

Factual Questions
21

There is this persistent notion that money that companies retain via being able to defer or deflect tax obligations is money that is “in the economy”, and money that is taken in tax revenues is taken “out of the economy”. Given that the federal government, even excluding the Department of Defense which has disproportionate employment of socioeconomically disadvantaged people, is by far the largest employer in the nation (~2.7M civilian employees directly, and millions more by direct contract from federal expenditures, not even considering subcontacts, federal research and development funding, and state- and local-programs funded by federal grants), and the vast majority of these jobs are stable, reasonably-well paying, and come with at least adequate medical/dental, educational reimbursement, and other benefits. Explain to me how Amazon.com’s mostly contract, no-benefits, hourly wage labor is better at “job creation” than that?

Now, you can argue that some, and perhaps even much of what the federal government does in terms of job creation is wasteful (although if you are going to take a jaundiced eye toward federal employees you also ought to apply the same scrutiny to government contractors), and should be streamlined or “outsourced” to private contractors who are hypothetically more efficient (never mind that a contractor has almost never turned away money offered as being more than they really need to do the work). There is a case to be made here, but it should be noted that the government during the post-WWII economic boom periods has almost without exception spent more money that it has taken in in tax revenues, so even if you cut back the government workforce under the thesis that government workers are unproductive, you’d still be hard pressed to argue that tax revenue alone is not effectively employing people who put that money back into the economy in durable forms such as purchasing housing, spending on education, paying local, state property, sales, and income taxes that is used locally, et cetera.

Federal tax revenues do not going into a big pit and set on fire; they are money that gets recirculated back into the economy, and also provides many of the facilities and services that private enterprise would never offer because there is no direct return on investment from it. These capabilities also provide the fundamental infrastructure for companies like Amazon to engage in practical and productive commerce. Arguing that companies like Amazon should be allowed to plow all profit back into growing the business under the thesis that private “job creation” is good and public employment is some kind of fundamental negative is pretty much like Milo Minderbender saying, “What’s good for M&M Enterprises is good for the country!”, even ignoring what Amazon and other online companies have done to local storefront businesses and the sales and property tax revenues that used to remain local but are now just largely fed into to corporate growth. Arguing to “starve the beast” is literally attacking the largest and most consistent employer in the economy on some theoretical principle that private employment is somehow “better” economically.

Stranger

22

I never claimed that. I just said that reinvesting profit is good for the economy. I never claimed that such was better than paying taxes.

Still, in any case, Amazon has no net profit, thus, no corporate income tax, although they pay others, of course.

23

But has Amazon and its phenomenal growth actually been “good for the economy”? I mean, it is certainly good for investors, and for the individual consumer it provides a bevy of options that retailers would probably not keep in stock; I’ll even say it has been great for locating hard-to-find used or specialty books that would not be carried by chain or local bookstores. But for all that it is perhaps the ultimate expression of neoliberal globalist economic policies, flooding the market with cheaply manufactured Chinese goods at prices that undercut anything that could be made domestically, I would question whether it has been a net benefit.

Per the previous post, Amazon has certainly undercut local retail brick & mortar businesses, reducing both the taxes they pay and the local job opportunities for retail workers, even factoring in that they’ve now been forced to collect state (but not local) sales taxes in states that impose them. It has replaced some of those jobs in the form of warehouse employment, albeit primarily non-benefits contract work under the notorious working conditions and expectations that have been well-publicized, and concentrated in warehousing hubs. It has gutted retail small businesses in many communities that lack other employment for non-colleged-educated or skilled trades workers. I haven’t found a comprehensive examination of the topic and it is not within my expertise to do so but I would strongly expect that Amazon has actually hurt the economy overall and in particular local communities even more than big box stores like Wal-Mart or gutter-scrapping Dollar General stores.

Of course, that it an inevitable consequence of online mass commerce and “free trade agreements” (Who agreed to them? Is a one-way flow of dollars for goods “trade”?) that doesn’t have anything specific to do with avoiding taxes through sheltering corporate revenues, but it does highlight the issue that corporations are by their nature focused on maximizing profits virtually independent of any external conditions or issues that such a singular focus produces (‘externalities’ in economist jargon) and just because reinvesting their revenues benefits the company’s balance sheet and growth rates more than paying taxes does not mean that it benefits the economy overall. Taxes are a way of assuring that some degree of benefit actually goes back into the general economy both in forms of infrastructure and critical services, and actual jobs that support this work in which consumers obtain money to buy goods and invest in their own needs,

Stranger

24

Amazon has not undercut local brick and mortar business. The internet did that. As you said-it was inevitable. Don’t blame Amazon for being successful. If it wasn’t them, it would be someone else.

The advent of reliable motor cars undercut stables, farrier, carriages, and what not. The blame isn’t Ford’s.

25

You are missing the point; Amazon displaced brick & mortar retail AND undercut tax revenues (refusing to collect state sales taxes until a few years ago). Even if they were paying federal taxes at the level that their revenue should obligate them, they aren’t paying any of the local sales or property taxes that a storefront would pay. Amazon “being successful” is what companies aspire to, and that is fine, but the assumption that a company being successful is also by default a general good to the economy is a false premise even in the case that it is paying taxes, and in the case of Amazon, avoiding paying taxes by reinvestment in growth is an adverse effect on tax revenues, even if you make the argument that it is deferred or means that the company will pay higher taxes later on due to its ability to put maximum revenues into growth, and notwithstanding externalities that impact the economy.

“The Internet” doesn’t do that; companies using the Internet (another government-funded and subsidized infrastructure that fundamentally provided the plenum for online direct retail sales platforms such Amazon) do it. That Amazon (and its majority shareholder) also avoids as much tax as possible while enjoying the use of such developments highlights the hypocrisy of arguing that they are better users of would-be tax revenue than the government would be.

Stranger

26

No, you are missing the point, blaming Amazon is like blaming Ford for the end of the horse and buggy industry.

That’s enough. Time for some other posters.

27

I pretty much agreed with your post #21 but I’m not as sure about your next two.

Amazon seems to me to be an interesting special case. The older argument used to be about large chains driving small neighborhood businesses into the ground, a problem that started early in the 20th century and peaked with Walmart. Few people remember when states passed laws against chain stores. Yet giving people a larger choice of products at lower prices is not obviously detrimental to the economy as a whole, even if some of their tactics were predatory. And if Walmart is as bad as many people claim, giving it a true rival is arguably a boon.

Amazon’s major innovation was not its internet presence per se but the changes to the way goods are exchanged that it fostered. (A useful, if perhaps overly laudatory, study is Amazon Unbound: Jeff Bezos and the Invention of a Global Empire, by Brad Stone.) Amazon Prime made access to the endless resources of the world market almost as convenient as going to a local store and Amazon Marketplace allowed millions of new sellers a place to operate. Doing so involved tactics as predatory as Walmart’s to be sure; I’m not arguing morality here. I am suggesting that Amazon - by itself and by forcing other companies to match it - has expanded the economy to an extent matched only by a few businesses in American history, maybe only the railroads, steel, and the auto industry. Much of that success came from taking enormous losses that few companies could ever have granted, albeit losses that helped negate their annual taxes.

I think that Amazon should have been paying sales taxes from the beginning and certainly some of its tax avoidance is due to creative accounting. Nevertheless, I can’t think of a matching success, which is why Amazon is such a special case. Where to draw the line between its good and bad effects is beyond my competence, but as you correctly say about the federal government, all those billions don’t get burned but are churned throughout the economy, many of them to companies and individuals who wouldn’t have had the opportunity otherwise.

28

The issue with Amazon isn’t that they drove brick & mortar competitors out of business (which, as noted, was pretty much inevitable), but that there is essentially no replacement for local taxes from both revenue and property. This, combined with the loss of manufacturing jobs to overseas labor has really gutted rural areas and small towns, and while Amazon is only a small piece of that trap it essentially owes its success to the globalization of trade that allows extremely cheap goods to undercut virtually any consumer-grade manufacturing. And yet, the defense of Amazon is that by allowing it to reinvest in its growth in lieu of paying taxes, it has created a stimulus in creating more jobs, even though most of those jobs are concentrated in warehousing and the logistics industries.

That Amazon has extended access to a wide array of different goods far beyond what even a big box retailer would carry is absolutely true, but any market economy has two essential components; producers and consumers, and in order for consumers to be sustainable they have to have income to not just purchase essentials but also to invest in property or save for the future, as well as have money to spend on discretionary items that actually create extensible economic growth i.e. you can only spend so much on basic nutrition, housing, et cetera, but you can spend up to the limit of your pocketbook (or for many people, their credit card limits) on entertainments, luxuries, travel, et cetera. Amazon has stimulated discretionary spending insofar as making it easier for people to buy stuff at discounted prices, but at the expense of both facilitating competition from overseas (as if that was even necessary) and not paying even the nominal taxes a retailer would have to pay.

Of course, large big box retailers play that game, too, getting tax incentives and manipulating their revenue and expenses so as to actually get tax rebates despite hundreds of millions of dollars of earnings, so it isn’t as if Amazon or Bezos is unique in this regard, but the general notion that corporate growth==economic health is just not true, at least if your measures for economic health are the percentage of people living above the poverty line. It boggles the mind that we can be “the richest country in the world” and have per capita earnings in the top ten, but yet have a poverty rate in the double digits, and not only are the wealthy okay with this, they actually consider it to be a good that the money is in their hands because they know what better to do with it than to give “too much” of to workers in the form of a livable “minimum wage” or to the government to maintain infrastructure and provide services.

Jesus Christ, now I sound like Richard Wolff on a non-stop Marxist screed. I’m not opposed to business or market capitalism or people being wealthy by dint of inheritance, investment, or hard work, but when wealthy people and corporations use their gains to shield themselves from even paying a nominal level of taxes, or worse yet, get more money back from the government than the average person would ever earn in their lifetime, we are living in a true kleptocracy.

Stranger

29

I think we’re mostly in accord but talking past one another.

I said exactly that.

But I never said anything like that. In fact, it’s missing the point of what I actually did say.

I agree, because I never said the opposite.

I’m a leftist because I believe that huge corporations only get that way by extreme exploitation and that the government is the only force that can stand against them. I’m a capitalist because I think corporations are necessary in a global economy and that useful corporations will grow huge. Those two beliefs are not always compatible. And don’t anyone quote Fitzgerald on that.

30

I think we are in, as the term goes, “violent agreement”.

Stranger

31

This is General Questions. Restrict your answers to answering the question, please.

RickJay
Moderator

32

But the discussion of Amazon is fairly germane to the question. It’s a process that started before 1900, when “The Well Fargo wagon is a-comin’ down the street♫” the telegraph and railroad meant that goods that one had to buy at the corner general store now came from a seller in the big city - or even more remote. Sears with their catalogs and railroad package shipping first started destroying the small shops on main street, because they could offer more variety and lower prices (thanks to volume) than the local mom-and-pop stores.

The obvious result is that the revenue generated and the taxes resulting - corporate profits, income taxes, even sales taxes - could no longer be collected locally. The gradual erosion of protective tariffs in favor of free trade in the last few decades has meant those issues became international.

I have no problem with Bezos. I remember ordering an obscure book in the 1970’s and waiting weks for it to arrive by mail. Book shopping involved browsing multiple book stores in town, or while on vacation. Now anything I want is available from online, and the only question is whether they deliver to Canada. (Otherwise, it’s - or was - a hop skip and jump across the border to a delivery depot). I can find a pair of compression socks at my local medical supply store for $90 or order 8 pair on Amazon for $24 from China.

The problem the OP is seeing is that tax policy has not kept up with international commerce. Perhaps the new G20 agreement on minimum corporate tax rates is the first step to sorting this out. To my mind, it’s analogous to the Titanic moment, when it suddenly dawned on regulators that the old way of calculating minimum lifeboat capacity requirements had a certain flaw in it. Taxes need fixing too.

Perhaps the biggest item that needs addressing is “what is a profit”? Or more accurately, “what should be allowed as a re-investment”?

Maybe Apple Corporate is overcharging Apple USA for iOS on each phone, or the design, or shipping - thus boosting profits in Ireland at the expense of USA. But unless all of that profit is re-invested, some has to be paid out. Apple shares are about $150 (it recently split) and current dividends seem to be a bit around 88¢ a year. So the real question is - where is that money going, if not shareholders?

The point is, these are tech-intensive companies. Not just the core business of computers and phones - Apple may have spent a small fortune by anyone else’s standards looking at making their own TV and given up. Ditto, they’ve researched their own car - still waiting - and Watch biometric monitoring, home systems, a streaming service and content, etc. They may waste a lot of money on what seem frivolous things (ditto Amazon with drone deliveries, etc.) but these are actual serious research items, and so consume what might have been profits. Note they’ve crated their own M1 processor chip and cut out Intel and its profits…

There’s no indication these re-investments would not happen if Apple stayed based in the USA. All it means is the small portion that does become profit and paid as dividends - is less taxes that it would have been in the USA.

However, for the people who you would think would want to collect those dividends - they’d rather make more money by selling their shares for a profit, thus reaping capital gains instead. hence the re-investment in a plethora of highly speculative technology which may create the next iPod or Apple Watch.

i do wonder if there will come a time when the companies are so big and profitable that they cannot possibly invest into more projects; but that just points them toward mergers and acquisitions, simply buying the companies that have pieces of tech they want. The real question would be - when does the cash cow die?

33

Only if it directly answers the question with facts, and the discussion is clearly verging into opinions and debate.

RickJay
Moderator