Amazon’s winning streak in the fight against the US tax system remains intact. This week, the retail giant announced record sales and earnings for 2020 and an effective federal tax rate of just 9.4 percent, less than half the statutory corporate tax rate of 21 percent.
In any case, Amazon’s growth in the pandemic year has been remarkable. Global pre-tax income for 2020 was $ 24 billion, up 73 percent from $ 14 billion last year before the pandemic. Revenue rose 38 percent over the previous year – during a pandemic. The company’s U.S. revenue was $ 20 billion in 2020. If Amazon had paid 21 percent of its profits in federal income tax, that would have been $ 4.1 billion. The company’s current tax of $ 1.8 billion was less than half of that, meaning Amazon avoided $ 2.3 billion in taxes last year.
In the first three years of Trump’s GOP Tax Act, which lowered the statutory corporate tax rate to 21 percent, Amazon paid an effective federal tax rate of just 4.3 percent on U.S. income. From 2018 to 2020, Amazon received $ 7.2 billion in tax subsidies. This is the difference between what the company would have paid at a full 21 percent rate and what it actually paid.
The mechanisms by which the company lowers its effective tax rate are largely unchanged: the company saved $ 1.8 billion in tax breaks on stock options and $ 639 million in various tax credits.
In the 2018-2020 period, Amazon also had amortization breaks, although these had no net effect on the company’s tax burden in 2020. With depreciation breaks, a company can deduct the cost of investing in equipment much faster than the equipment wears out. Proponents of Congress claim this will encourage investment and help the economy as a whole, but it is more likely to reward companies making investments that they would have made anyway.
The effects of depreciation interruptions are complex. Part of the effect is to defer tax payments further into the future, although the net effect will reduce the company’s tax liability in the long run. For this reason, it is important to look at a company like Amazon over several years – and from this perspective it is clear that the tax legislation of the state of Amazon hardly throws a spanner in the works.
Amazon’s tax avoidance is consistent. For the past three years, Amazon has paid an effective income tax rate of only 4.3 percent on U.S. income. For the past 10 years, Amazon’s effective tax rate on US pre-tax revenue of $ 57 billion was just 4.7 percent. This is particularly noteworthy given that the statutory tax rate was 35 percent for most of that period.
For any other company, $ 1.8 billion in current federal income taxes would be interpreted as a sign that the company’s tax advisors had taken the year off. In the case of Amazon, the $ 1.8 billion the company paid is overshadowed by the $ 2.3 billion it didn’t pay last year. These unpaid taxes are particularly worrying as the Amazon pandemic experience is radically different from the existential threats facing entire industries. Far more typical of the 2020 economy are companies that report crater-like sales and no profits. In this environment it is important that our tax system works as advertised. If Amazon saves more than half of its tax profits, our tax system is clearly in need of reform.