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Increasingly, businesses don’t generate profits – they generate capital gains
- EADGBE 9y ago"Simple: don’t show any profits" is a concept that's been used forever to avoid paying taxes from the local handyman all the way to Amazon. It isn't evil, but just try and convince some people that. Especially that handyman, who's trying to avoid those estimated payments in a slow business part of the year.
- supergeek133 9y agoExactly, anyone that wants proof of this just needs to do business with a tradeperson outside of the big cities. Family has had a cabin home about an hour outside of Minneapolis, whenever I need something (plumbing, woodwork, etc) I always ask for the cash price. You can get huge discounts because the business simply doesn't have to report it (they DO but no way to track it). I personally don't think it should be frowned upon.
- lawnchair_larry 9y agoYou don't think felony tax evasion should be frowned upon? That goes far beyond tax avoidance.
- candiodari 9y agoIf you think this behavior is bad in the US, come have a look in Europe. You'll be amazed. And I'm from Northwest Europe, I 'm told I would not believe what common practice is in Greece.
- deleted 9y ago[deleted]
- supergeek133 9y agoDo you think it's OK for Amazon and other companies to do this in a more "corporate" sense? Why is it OK for the big guy but not the little guy just because they have good legal/financial resources? For some small businesses in this country, it's the only way to stay competitive to big enterprise. See: Little pizza shop versus large franchise. I'm talking about the spirit of the whole thing, not the law. To be completely honest, most business will tell you this revolves around the criminal amount the card processors take from them in processing fees.
- tome 9y agoWhat Amazon does is completely different!
- supergeek133 9y agoThe laws by which they retain their cash are different yes, but is the result? Not to mention the order of magnitude is larger.
- tome 9y agoYes, because the money is going directly back into things that benefit the company and returns cashflow which will (presumably) be taxed at a later date.
- semafour 9y agoCredit card rates with your own merchant account are 3% - 8%, depending on your industry and chargeback history. Federal Marginal tax rates are 10% - 38%, plus maybe 5% in MN. If they are giving you a 5% - 10% discount for cash, sure, it's probably because they appreciate skipping the credit card. If they give you a larger discount for paying in cash, they probably aren't reporting the income.
- EADGBE 9y agoCC rates can be negotiated down below 3%.
- tclancy 9y agoIf you ignore scale, sure. A handyman pocketing $100 in cash here and there is a good deal different from a company whose whims could affect the trajectory of the economy.
- EADGBE 9y agoI wasn't insinuating pocketing cash. I was insinuating tax avoidance methods. Which are completely legal and how every small business stays afloat. (Write offs, SEP IRA, Depreciation, company car, office space, etc.)
- conanbatt 9y agoIt's not the act that is evil, is the person doing it, am i rite. We must take the veil off Lady Justice. Please. Corporate taxes make no sense as they are, companies don't pay taxes, people pay taxes. And corporate taxes more often than not fall on the consumer.
- taxicabjesus 9y agoAlmost six years ago, before I took to taxi driving, I spent almost two months as a "seasonal associate" at an Amazon warehouse in Phoenix. It was such a relief to get laid off... In the warehouses, people are servants to the machine, and are entirely replaceable. "Humanity's Second-Best Hope" was based on my experiences at Amazon: http://www.taxiwars.org/p/humanitys-second-best-hope.html http://www.taxiwars.org/p/humanitys-second-best-hope.html
- EADGBE 9y agoSeasonal. Warehouse. Job. This experience sounds like a typical warehouse job. I'll ignore the outdated political symbolism.
- dboreham 9y agoA principle well known to economists is that if you tax some activity, you are going to see less of that activity. This applies to business profits. Heck when I started my first business our newly engaged accountant told us "whatever you do don't make a profit" (meaning pay any money mad to employees/managers). Hardly a new or specific to Amazon concept.
- deleted 9y ago[deleted]
- justicezyx 9y agoSo the idea is we want someone to get rich but not let some others to have basic income. That indeed sounds like the human intention, despite universally people claim the opposite.
- dboreham 9y agoI have truly no idea what you are talking about. The idea is that if a government is going to tax money at X% when left to accrue as corporate profit, but at Y%, where Y<<X, if extracted in some other way from the business, then any rational human will do the obvious thing.
- tome 9y ago> "money mad to employees" "mad"? What does that mean?
- mgamache 9y agoAvoiding double taxation? Evil! How about removing the corporate income tax? https://www.nytimes.com/2014/01/06/opinion/abolish-the-corporate-income-tax.html https://www.nytimes.com/2014/01/06/opinion/abolish-the-corpo...
- ryandrake 9y agoI've never understood the whole "double taxation" complaint. Money is taxed whenever it changes hands. Why is it that only the taxing of dividends is considered "double taxation" [1]? 1: http://www.thepatriotaxe.com/blog/wp-content/uploads/dividends.gif http://www.thepatriotaxe.com/blog/wp-content/uploads/dividen...
- aracarie 9y agoBecause companies can't deduct the dividend payment on their taxes. If $100 is paid in dividends then both the individual and the company pay income taxes on that same $100.
- BearGoesChirp 9y agoIf I use $100 to pay for groceries, I had to pay income tax, sales tax, then the company has to pay any profits on it, and then when the employee gets paid they have to pay income tax on their part. Perhaps the issue is we tax money way too much as it flows through our economy.
- conanbatt 9y agoIts definitely about how the compounding of two taxes is a lot. If you live in a country that doesnt have a tax treaty with the us for example, for every 100 dollars, you could potentially have to pay 35 in the US, and then of the 65 left, 22.75 more to the home country, for a whooping total of 57.75% tax rate.
- notahacker 9y agoThere's even more [and more unjustifiable] whinging about "double taxation" over inheritance tax, despite inheritances comprising assets that bought with income that in many jurisdictions hasn't been taxed for decades, often with enormous untaxed asset price appreciation in the mean time. Many of the people making arguments against "double taxes" also favour balancing the books with higher sales taxes - sales taxes not deductible from our income taxes - presumably in the expectation that the incidence of that "double tax" will fall more upon other (usually poorer) people...
- mrmcd 9y agoUnrealized capital gains aren't income because I can't pay my rent and buy groceries with Amazon stock. Even if I could once I did it would be realized same as if I sold it for cash, and I'd owe tax. You could argue that capital gains rates are too low, but that's a different argument than saying stock owners are getting "invisible income".
- rileymat2 9y agoI was under the impression that loans can be secured by stock. Then you don't pay the gains but get the money to spend on rent or whatever.
- jgalt212 9y agoYou are correct sir. I own $10,00 in stock. per reg T, I can borrow $5,000 against it. Now the stock goes on an Apple/Amazon like tear and it's worth $1,000,000. Now I can borrow up to $500,000 against it--that's a lot of rent groceries. The above assumes you control the shares and they are pledgeable as collateral. It is not easy, but doable, to borrow against RSU's. i.e. you probably need a high net worth/private banker relationship.
- charlesdm 9y agoI was under the impression that per reg T, you can borrow 100% of the equity value of your stock. So if you own $10,000 worth of stock, you can borrow $10,000 against it (but you will get margin called if there's a decline, so don't do that). You're right however, if you want to acquire more shares using margin, then your equity needs to be at least 50% of the stock value, i.e. with $10k you can purchase (up to) $20k worth of stock.
- sokoloff 9y agoShorthand: You can borrow 50%. You can't put $10K into the account, buy $10K in shares, and borrow $10K in cash (leaving 0 net equity in the account). Your scenario where you can borrow 100% of the value applies only if you apply that 100% to further shares (meaning you buy 2x as many shares and have a margin balance of 100% of your original equity but 50% of the shares' value). That means you can buy $20K worth of stock using $10K of cash.
- lazyjones 9y agoAmazon's net profits increased to $1.17b in 2016 and are likely to stay healthy. So the article is already a bit obsolete. It's not like it isn't onto something, but the ingenious scheme used by evil megacorporations isn't just not posting a profit, but moving that profit to some tax haven to avoid taxation.
- wonder_bread 9y agoThis seemed to be the case but after the recent earnings report Bezos & Co. hinted that they are likely to go back to losing money now. https://techcrunch.com/2017/07/27/it-looks-like-amazon-would-be-losing-a-lot-of-money-if-not-for-aws/ https://techcrunch.com/2017/07/27/it-looks-like-amazon-would...
- mikekij 9y agoThis article gets two big things wrong: 1) Amazon's lack of profits appears to be due to reinvestment back into the business, not because the margins are non-existent. If the margins weren't there, there would be no money to invest in R&D. 2) The author never comments on the issue of double taxing corporate profits. Is it really the spirit of the tax code that $1 in profits earned by a business should really yield $0.48 to the federal government? The best way to address the author's concern is to put the effective corporate tax rate (35% corp income + 20% dividend) more in line with capital gains rates.
- tclancy 9y agoIsn't your first complaint exactly described in the article? >3. You build a bigger and bigger business.
- analog31 9y agoIs it really the spirit of the tax code that $1 in profits earned by a business should really yield $0.48 to the federal government? In my view, the answer is yes. At least at the macro level, there are no unintended consequences in the tax code. Double taxation has been widely known to anybody who has influenced the development of our tax code, for decades. With that said, is there potentially a better way to collect $0.48 on every $1 earned in profits? Should it be $0.18, or $0.88 instead? Those questions are certainly worthy of debate.
- sol_remmy 9y ago> In my view, the answer is yes. At least at the macro level, there are no unintended consequences in the tax code. Double taxation has been widely known to anybody who has influenced the development of our tax code, for decades. He's not really asking if that tax rate is intentional. His real question is doesn't it seem unfair that a business is taxes for 48 cents on every dollar?
- analog31 9y agoIn that case, I think the answer depends on whether you favor lower taxes, or higher. I also wonder if it would make sense for business taxes to be progressive, like income taxes.
- toyg 9y agoI'm all for raising taxation, but I've always felt Amazon is often the wrong target to pick on. They are a rare example of an old-school business in the digital age - they pinch every penny and then reinvest all revenues in the business itself or send them out as personal compensation. They don't stash billions in Bermuda accounts, they don't give them to Wall Street players with the right connections, they don't leverage their might to spike property prices, and so on. Amazon is what every big business could be if people at the top were a bit more concerned with actual efficiency and growth, and less with pure greed. But: in their actual business practices, Amazon often squeeze the little guy - both their workers and their small-retail competitors - so they are easy to hate. They clearly display all the problems with cyberspace (who should be taxed where, when bits go up and down some fiber? Where is my data "in the cloud"? Etc etc), so they are at the nexus of a number of critiques, and rightly so. I personally don't think, though, that their overall investment/growth strategy should be attacked, because it's actually very good from a social perspective.
- refurb 9y agoWhat makes you think Amazon is doing everything in it's power to avoid paying taxes just like every other multi-national? http://www.newsweek.com/2016/07/22/amazon-jeff-bezos-taxes-479814.html http://www.newsweek.com/2016/07/22/amazon-jeff-bezos-taxes-4...
- toyg 9y agoThe point is not tax minimization (which every company does), it's what you do with the money thereafter. Amazon historically didn't hoard cash like, say, Apple, preferring to put most of the money back in the business, which is what I was talking about; however, looking at recent data, it seems like they've started significant accumulation of cash in 2014, and they're now sitting on $20bn+. I wonder what triggered this change.
- specialist 9y ago"I'm all for raising taxation, but I've always felt Amazon is often the wrong target to pick on." Agreed. Amazon is the embodiment of our new winner takes all economy. The natural result of the combination of power law distribution of attention and market unification. If society chooses to mitigate, the two available strategies are pro-competition (anti-monopoly style breakups, artificial top-down market segmentation) or radical cashectomies (wealth redistribution thru higher tax rates and universal basic income).
- carsongross 9y agoWe get more of what we tax less? Weird.
- anovikov 9y agoAm i the only one so cynical that i don't see how is this a problem for anyone?
- sauronlord 9y agoI didn't realize the article even had the 'this is bad' tone. It's peefectly reasonable that Amazon would continue to create jobs and advance the state of the art so people have higher quality of lives.
- toddh 9y agoOf course their unrealized gains are not included in income... that's not what income is. The online reason this works is because the tax code specifically preferences investment & the gains thereon vs interest & wages/Self Employment income. Wouldn't that be an interesting discussion to see as part of tax reform...not holding my breath.