Amazon paid no federal income taxes in 2018 but instead reported a federal income tax rebate of $129 million. However, this wasn’t because the retail titan sustained a loss by running its revenue-earning operations in said period of time. Instead, Amazon came close to doubling its net income, seeing as how it managed to make $11.2 billion in 2018 compared to $5.6 billion in 2017.
Some people might be confused by this outcome because Amazon should have an 18 percent income tax rate. Unfortunately, it seems that Amazon received tax credits while benefiting from tax loopholes such as a tax break for executive stock options, thus enabling it to pay no federal income taxes on its earnings for the second year in a row. Even worse, it is clear that Amazon isn’t alone in this, seeing as how corporations such as Netflix, General Motors, and U.S. Steel are expected to pay no federal income taxes for the same period.
Is Amazon Expected to Pay Any Federal Income Taxes for 2019?
Unsurprisingly, the fact that Amazon paid no federal income taxes has caused a fair amount of irritation. After all, there are a lot of people who are upset by the fact that a corporation bringing in record profits won’t be paying any federal income taxes when they can’t hope for anything similar. As such, it is natural for these individuals to wonder whether Amazon will be able to avoid paying federal income taxes in 2019 as well.
No one can predict the future with perfect accuracy. However, it seems reasonable to say that there is a very good chance that Amazon will be paying either no or next to no federal income taxes in 2019. Furthermore, even if Amazon does end up paying federal income taxes, chances are good that its tax burden isn’t going to be all that great.
Primarily, this is because corporations operating in the U.S. have very favorable tax treatment. For those who are curious, there was a corporate tax rate of 35 percent from 2008 to 2015. However, the numbers for the more than 250 Fortune 500 companies that managed to make a profit in each of those years make it clear that their effective tax rate was a much lower 21.2 percent. Moreover, a total of 48 of those companies had an effective tax rate that was lower than 10 percent, while a total of 18 of those companies paid no federal income taxes whatsoever. As for Amazon, well, suffice to say that it has gotten even better at avoiding federal income taxes in recent times, seeing as how its effective tax rate for said period was 10.8 percent compared to the much more recent nothing at all.
With that said, it should be mentioned that the Trump administration has made a number of changes that have stacked things even more in favor of the corporations. For example, the corporate tax rate is now been cut to 21 percent. Furthermore, there have been some rule changes that will enable interested corporations to lower their profits and thus the taxes on their profits. One excellent example is accelerated depreciation, which lets interested corporations record the full cost of their new equipment and other forms of machinery as immediate expenses rather than distribute that expense over the course of their useful lifespan as in accounting best practices.
There is definitely an interesting debate that can be had about what corporations are being taxed in the United States as well as what should be changed about it if anything. Traditionally, the argument for so many tax breaks is that they are believed to incentivize corporations to invest more into their revenue-earning operations, thus creating more jobs in the process. However, there are plenty of studies that cast doubt on this particular argument, whether because the money might not be spent on investments or because the investments might not be job-creating investments. For that matter, it is worth noting that these tax breaks were not introduced all at once but rather in gradual stages over time. As a result, while those who introduced them might have been aware of their individual effects, chances are good that they were much less cognizant of their combined effects, which is one more way that serious issues could have crept into the whole mess.