It is accurate to say that Amazon didn’t pay any federal taxes during the past two years. However, it is important to comprehend why before shouting “paternalism.” Only comparing Amazon’s revenues to corporate taxes constitutes too basic of a model, as is clear from a more detailed investigation of the underlying economics.
Instead, comprehending economic motivations is a fantastic place to start. In simple words, incentives resemble free money. According to economists, incentives work as a tool to provide a better outcome that balances the cost. Another such lever is taxation. Taxes, however, are much too frequently and simply considered based on their first-order revenue-generating effects rather than their second-order effect of promoting economic activity. Get more information on https://www.adbadger.com/blog/how-should-amazon-professionals-optimize-tax-planning-ppc-den-podcast-152/.
Amazon’s Tax Breaks and the Underlying Incentives
There are three main drivers of Amazon’s tax breaks:
- Spending money on research and development
Due to its significant R&D expenditures, Amazon is eligible for the tax credit. This funding has given rise to many of Amazon’s breakthroughs.
- Investing in real estate, machinery, and equipment
Amazon is also qualified for tax benefits due to its investment in real estate, machinery, and equipment. Investment by Amazon in creating jobs and real estate can help cities. Over the past five years, Amazon has gradually expanded its PPE spending, which recently totaled over $60 billion.
- Stock compensation for employees
The third reason for its tax benefits is a shift in employee remuneration from cash to stock-based compensation. As the value of the stock rises, so do the tax deductions. While this might undoubtedly lead to unfavorable incentives, it is crucial to weigh the advantages it brings against the costs. Such a tax policy creates motivations for management to maximize returns for investors, even if it has the potential to bring mismatched management incentives.
Because Amazon uses the profits to expand its business, it pays little to no corporation taxes. Without tax benefits for corporations, Amazon would be less likely to invest, which would result in more opportunities for the firms and towns where it operates.
It’s acceptable to raise a pitchfork in opposition to Amazon’s corporate tax benefits if the justification is sound economic theory. The danger is that when evidence is taken out of context too frequently, false narratives surrounding it gain traction and unjustly escalate.
Without a solid understanding of why these economic institutions are even there, the drive to destroy them might place you in a worse situation. Instead than asking why Amazon doesn’t pay taxes, you should ask how your tax system may be improved.
