Today, Forbes pinned Amazon CEO Jeff Bezos’ net worth at a cool $192.3 billion, making him far and away the globe’s richest individual. He briefly surpassed $200 billion in August, the first person ever to do so.
On a good day, he might earn several billion dollars, and analysts project that if his fortune continues to grow at its current pace, Bezos could become a trillionaire by 2026.
It’s difficult to fathom just how affluent Amazon’s front man is, and it can be illustrated in some truly bewildering ways. For instance, he is worth 1.2 million times the average American household and could fund all of Washington state’s public schools for over a decade, per Business Insider. Within just a few short weeks, these will likely have become vast understatements.
Okay, he’s crazy rich. So what? Well, Democratic presidential nominee Joseph Biden recently claimed ninety-one of the Fortune 500 companies, including Amazon, paid absolutely nothing in taxes in 2018. The New York Times rated this claim true.
Let’s look at history. In 2012, Amazon interestingly paid $530 million of federal income tax despite a net annual loss of $39 million. From 2013-16, $2.2 billion tax was paid on $7.73 billion income, an effective 28.46% rate. However, the company’s federal tax liabilities were indeed a goose-egg from 2017 to 2018 despite reporting over $14 billion profit, per a CNBC report.
In fact, Amazon was granted $137 million and $129 million in federal tax credits in those years, respectively.
For 2019, the picture looks different. Amazon paid $162 million in federal income tax on $13.9 billion of gross income, a rate of merely 1.165%, and a larger $2.4 billion in other forms of federal taxes, such as payroll taxes and tariffs on imports.
One company blog post from January detailed payments exceeding $1.6 billion in state and local taxes of several different forms to Washington, as Seattle hosts Amazon’s headquarters. To top it off, states and localities throughout the United States collected nearly $9 billion in sales and use taxes from the company.
They also have deferred $914 million of federal taxes, as President Donald Trump’s tax law from December 2017 temporarily permits corporations to entirely deduct the costs of new technology from their taxes.
In parallel to my recent article on Trump’s personal taxes, the full story is rather complicated. Both the president and the e-tailer have paid what they owe, but it is only pennies on the dollar compared to their total profits at certain times.
However, a blatant difference exists: Trump has often lost much more than he’s made and can simply deduct the losses, whereas Amazon’s profits, and Bezos’ net worth, have only grown abundantly larger in recent years. Why, then, do both of their tax liabilities largely disappear?
Much of the reason pertains to tax laws regarding stocks. Amazon has a habit of not paying its shareholders, instead investing all profits right back into research and development (R&D) to legally escape Uncle Sam’s jaws. However, if and or when investors demand their dividends, the company will have to pay capital gains taxes.
Indeed, Bezos’ net worth is largely intertwined with stock in his own company. Investopedia notes he owns over 55.5 million shares of Amazon, over 11% of its total stock. This accounts for $181 billion of his personal fortune, or over 94% of it.
Little-known is that the CEO takes a relatively meager salary of $81,840, which he has done for over two decades, on which federal, state, and local taxes will of course apply.
As for the remainder of Amazon’s stock, a 1993 law signed by former President Bill Clinton permits employee compensation through stock options or grants to be deducted from corporate taxes, per Vox.
Thus, when Amazon stock increases in value - and it has, significantly - employees will be compensated generously in this manner, enabling Amazon to deduct more because it makes more, not despite the fact. Compensation through stocks comes at no cost to the company, however, because they can split stocks to their heart’s desire.
If you’re particularly curious about the above law, it is enshrined in Section 162(m) of the U.S. tax code.
Confusing, I know. However, Amazon is far from the only large corporation to receive a nonexistent tax bill from this practice. Senator Bernie Sanders of Vermont recently wrote a tweet naming a few other examples, including General Motors, Netflix, Starbucks and formerly, Chevron.
Worth noting is that Amazon does not take the more typical routes of stashing profits offshore or declaring itself a foreign company to avoid paying taxes, as Vox notes their sales mostly come from the United States.
Everything Amazon does here is entirely legal, but the economic gap between Jeff Bezos and his employees only continues to widen. To address this, Joe Biden’s campaign website calls for several tax reforms intended to narrow such disparities.
Among them: a minimum 15% tax on net profits, and a minimum 21% tax on the foreign earnings of American-based companies, as well as raising the corporate tax rate to 28%.
Meanwhile, President Trump’s tax law cut the corporate tax rate significantly, from 39% to 21%. He has also publicly wished to lower the capital gains tax rate from 20% to 15% and dreamed aloud of cutting income tax rates again in a potential second term.
This is irresponsible fiscal policy, plain and simple. In response to the pandemic, Trump eliminated the payroll tax through the end of this year. Combined with exorbitant stimulus spending, the CBO noted the federal budget deficit for fiscal year 2020, which ended Sept. 30, was a colossal $3.131 trillion.
That’s over twice as large as the previous record, $1.4 trillion in 2009, which is largely attributed to government outlays from the Great Recession.
For the record, Jeff Bezos’ current fortune in its entirety would cover less than 6.3% of that 2020 deficit, and the light at the end of the pandemic remains yet invisible.