Amazon and the corporate income tax
Mega-retailer Amazon.com has gotten a lot of
flack from left-wing media about reports that it paid no federal income tax in 2019.
Friends of ours at Americans for Tax Reform have
explained—correctly—how Amazon simply played the game by the rules, did a
number of things that are socially positive, and, in any case, will pay a lot
of other taxes. All true and relevant.
But, with great respect for what ATR says, I
don’t think they go far enough: I’m glad Amazon doesn’t pay any taxes because
the entire idea of taxing Amazon or any other company at the corporate level is
simply a bad one that everyone—right and left—ought to oppose. As I’ve written about before, the
entire idea of the corporate income tax is misguided. The real question
shouldn’t be “why doesn’t Amazon pay taxes,” but “why should any business pay them?”
Quite simply, the corporate income tax is a
bad idea. While corporations do, quite properly, enjoy a type of legal
“personhood,” the paper understandings that constitute a corporation obviously
can’t pay taxes themselves. Any taxes assessed on a corporation’s income are
ultimately paid by its customers, who might pay higher prices, its owners, who
could receive lower dividends or slower capital appreciation, or its employees,
who might receive less compensation. While there is a robust
and continuing debate as to who exactly pays corporate income
taxes in the end (what economists call “tax incidence”) it’s clear that all
three groups do to some extent. So, any increase in the corporate taxes will
reduce dividends/appreciation, cut wages and reduce returns to stockholders.
Rather than public policy makers deciding
which of these things happen, furthermore, corporate managers get to make the
first order decisions as to who actually pays. Since most corporations have
competitors, they can’t easily raise prices unless everyone else in their
industry does, and agreeing to do so would be illegal collusion. Likewise,
managers who own the company themselves (as is the case in most small
businesses) are disinclined to cut their own incomes or (in the case of large
businesses) risk the wrath of stockholders who can sell their holdings with a
click of a mouse. As such, workers often end up paying the price. Some
economists have estimated that as much as 75 percent of corporate taxes may be paid by
But it wouldn’t much matter who pays the taxes in the end: corporate
taxation would be just as problematic even if one could show that stockholders
and managers paid all of it simply because it’s inefficient at achieving any set of goals. People on the left who
want the wealthy to pay their “fair share” and redistribute wealth can do so by
raising marginal income tax rates on the wealthy, taxing capital gains more
heavily, or even doing what Sen. Elizabeth Warren has proposed and placing a
direct tax on accumulated wealth. Whatever their flaws—and I don’t consider any
of these things to be ideal public policy—they do actually ensure that the successful pay more in taxes. Indeed,
even the certainly-not-conservative Obama administration supported lower corporate tax rates.
There would be other benefits too:
corporations wouldn’t have to spend billions to comply with the tax code and
wouldn’t be able to use corporate tax favors to try to hurt their competitors.
In businesses like lending, medicine, and education where for-profit and
not-for-profit entities provide similar services, everyone would have a level
Government does need revenue to perform its
necessary functions, of course, and an outright elimination of the corporate
income tax would almost certainly require raising taxes somewhere else. I’ve
personally favored carbon taxes as a good way to do
this largely because I think that it’s better to tax something we want less of
(pollution) instead of something we want more of (innovation and investment).
But whatever one thinks, the corporate income tax is a bad idea.