WILFORD: Tax Benefits For Amazon Prove The System Is Working, Not Rigged

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Andrew Wilford National Taxpayers' Union Foundation
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The news that Amazon paid no taxes last year has riled up Democrats for quite some time. To them, it is proof of the “rigged” nature of the system, where working Americans pay all the taxes while large corporations get off scot-free. In order to remedy this situation, some are now a new proposal is circulating that corporations be required to release their tax returns to the general public. Unfortunately, this would accomplish nothing while creating other problems.

The implication behind complaints about Amazon (or other large corporations) paying nothing in taxes is that Amazon is using nefarious means to zero out their tax liability. The fact that such a large business as Amazon paid no taxes must mean that Amazon is receiving unfair sweetheart deals or taking advantage of questionably legal loopholes — so the thinking goes — and making their tax returns public would shine daylight on their perfidy.

The problem with this thinking is that we do know how Amazon managed to deduct its way to no taxes last year. As Amazon is a publicly-traded company, it is subject to more stringent disclosure requirements. Those disclosures show Amazon attained zero tax liability using entirely legal and well-known deductions.

Amazon paid no taxes because of the research and development tax credit (a bipartisan deduction which acknowledges that R&D benefits society as a whole), net operating loss carryforwards (another bipartisan deduction that allows businesses to smooth out tax liability across good years and bad), full expensing for investments (also a bipartisan change that allows investments to be deducted immediately instead of over the course of many years) and the stock-based compensation deduction (introduced by President Clinton and congressional Democrats).

In other words, there was nothing secret or villainous about what Amazon did. If anything, it shows that companies are responsive to the tax code’s efforts to direct corporate behavior to benefit the economy as a whole. There’s no secret treasure trove that corporations have hidden away to find. And yet, tax crusaders are seeking to use the example of Amazon as an excuse to hit out at businesses for next to no reason (call it “owning the corps”).

But increased disclosure requirements would be worse than just useless. One big reason against mandatory corporate disclosure is the same as the reason that your neighbors shouldn’t be able to see your individual returns — it’s private, and not their concern. In this case, tax information being public means it is public to a business’s competitors, potentially exposing trade secrets. After all, even private businesses get audited by the IRS — lack of public disclosure doesn’t mean that no one is looking at businesses’ tax returns, just that Twitter “journalists” aren’t.

Another reason is that any form of increased disclosure means increased compliance obligations, which fall heaviest on small businesses that lack the accounting resources to take them on. Even though the Tax Costs and Jobs Act included tax simplification efforts, complying with the tax code still cost the economy over eight billion hours last year, which translated to roughly $365 billion in economic costs. Adding new reporting obligations would only exacerbate this issue of deadweight loss.

We could also see the tax code become less effective as a public policy tool if Americans consistently engaged in tax shaming over businesses taking advantage of deductions. American taxpayers are far better served by Amazon earning deductions by investing in economic growth through capital improvements and R&D than they would be by a few billion dollars to throw at our national debt (currently $22 trillion and counting!)

After all, would the pro-disclosure crowd prefer that Amazon put its revenues towards share buybacks (it currently doesn’t) instead of more productive investments? Coordinated public shaming over corporations utilizing deductions that were put in the tax code for good reason would serve no one.

Increased corporate tax disclosure may sound good, but it would not result in the finding of any pots of gold hidden at the end of the rainbow. It would just create unnecessary hassle and invade privacy for no benefit.

Andrew Wilford (@PolicyWilford) is a policy analyst with the National Taxpayers Union Foundation, a nonprofit dedicated to fiscal policy analysis and education at all levels of government.

The views and opinions expressed in this commentary are those of the author and do not reflect the official position of The Daily Caller.