Progressives say that they want Corporate America to think long-term rather than short-term: To invest in research and development, to spend more on domestic plant and equipment, and to hire more workers with decent pay and decent benefits. In fact, we’ve designed the tax system specifically to give companies incentives to do that.
That’s why Joe Biden should be applauding Amazon rather than criticizing it. In a tweet on Thursday, Biden wrote: “I have nothing against Amazon, but no company pulling in billions of dollars of profits should pay a lower tax rate than firefighters and teachers. We need to reward work, not just wealth.”
But if there’s any company that’s about investing in America and American workers, it’s Amazon. Amazon was #3 in our 2017 list of the top companies ranked by U.S. capital spending, putting $12 billion into the U.S. economy that year alone. Because of the productivity gains from these investments, the company was able to institute a $15 minimum wage for all full-time, part-time and temporary workers, covering even low-wage states like Tennessee, where the hourly median wage for all workers is less than $17. The productivity gains have also sent the stock price soaring, putting billions of taxable dollars into the hands of Amazon employees in the form of restricted stock units. And Amazon funnels back billions of dollars each year in long-run R&D spending.
The federal tax system is intentionally designed to reward this type of corporate behavior and strong performance. For example, the 2017 changes to the tax code allow a company like Amazon to deduct much of its capital spending from its taxable income right away, lowering its tax bill. R&D spending gets a sizable tax credit from the federal government as well. And the rules covering the exercise of stock grants, while lowering Amazon’s tax bill, could be generating a great deal of personal tax revenue for the government.
Here’s why: A stock grant—which were given to many Amazon employees, and not just the top ranking executives—is more valuable the higher the stock goes. When the employee is granted stock, it is generally taxed by the government as ordinary income. Meanwhile, part of that cash is deducted from the company’s income, just like any other worker pay, lowering the company’s taxable income. In other words, the more successful the company is, in terms of a rising stock price, the more money flows to employees. And the more money that flows to employees, the more taxes are paid by the employees as personal taxes rather than corporate taxes.
So it’s not surprising that a successful company like Amazon that is investing in America is going to have a lower tax rate than workers—the tax system is designed that way. Conversely, a company that is not investing in R&D or capital spending, and has a falling stock price, may be paying a bigger share of its income in taxes—but is it really benefiting Americans?
Progressives may not be satisfied with everything that Amazon is doing. But Biden and other Democrats shouldn’t blame Amazon for investing in America, and then following the rules of a tax system that is specifically designed to encourage corporate investment. It’s good for workers and consumers.
