The Truth about Amazon’s Tax Bill

It is widely reported, and believed, that Amazon paid no taxes last year. Though incorrect, how this story gained traction shouldn’t really come as much of a surprise.

Bernie Sanders got in front of a microphone, and the rest was a foregone conclusion. First, he claimed it was “insane” that Amazon paid no federal tax. He then pointed out that Amazon is owned by the richest man in the world, Jeff Bezos. From there, Sanders went where he always does. He vowed to “raise corporate taxes and do away with these tax havens.”

Predictably, Sanders continued, “We’re going to ask the people at the top to start paying their fair share,” because “we cannot continue this grotesque level of income and wealth inequality that currently exists.”

It has become fashionable to point to Amazon as a villain in this story; to the extent there should be blame at all, the blame should rest with the crafters of the tax code: Congress.

The truth of the matter is not nearly as compelling. While Amazon paid no federal income tax, it did pay over a half billion dollars in payroll taxes, and over a billion dollars in local, state and international taxes. Bernie Sanders would prefer not to talk about the billion and a half dollars in taxes Amazon did pay. That’s an uncomfortable truth.

Also uncomfortable is the reason Amazon paid no federal income tax. The company was playing by the rules that Sanders and his colleagues in Congress created. In an effort to encourage businesses to invest in research and development, and to take risks in creating jobs, Congress deliberately wrote the tax law so that development costs and past losses would reduce the tax burden on businesses that took chances and survived. While it has become fashionable to point to Amazon as a villain in this story, to the extent there should be blame at all, that blame should rest with the crafters of the tax code: Congress.

For politicians, taxes present a Catch-22. On the one hand, the more tax revenue the government collects, the more money politicians get to hand out to special interests in exchange for support at election time. On the other hand, increasing tax rates drives away the same voters that politicians seek to attract.

The economic reality of taxation is that businesses don’t pay taxes; they collect taxes.

And here, businesses present the perfect solution. Politicians have discovered that they can use businesses to tax the voters while, simultaneously, appearing not to be taxing the voters at all. The economic reality of taxation is that businesses don’t pay taxes; they collect taxes. The tax dollars that businesses pass to the government ultimately come from customers, in the form of higher prices, workers and suppliers, in the form of reduced wages and payments, or investors, in the form of lower returns. No matter how you slice it, it’s voters who ultimately pay for “business taxes.”

The less clear politicians can make this, the better off they are. So Bernie Sanders points to Jeff Bezos and Amazon, knowing the people will not realize he is really pointing right at them.

Making matters worse, when politicians do impose taxes on businesses, they can’t control which of us — customers, workers or investors — end up paying them.

Consider the Social Security tax. According to the law, the employee pays half of the tax (6.2 percent of wages) and the employer pays the other half (another 6.2 percent). People assume that the employer’s half comes out of the business’ profits, which means that investors are paying the half in the form of lower returns. But there is evidence that the employee pays almost the entire 12.4 percent. This is possible because the employer simply reduces the worker’s wage by the employer’s half of the tax. The worker isn’t aware he’s paying the tax because the money never shows up in his paycheck.

Politicians who drum up resentment for businesses that follow tax rules aren’t interested in businesses paying their fair share. They just want to distract voters with talk about “fairness” long enough to get more money from them, while appearing to do something else. In short, they’re lying. Imagine that.

This Inside Sources article was republished with permission.