What price should Amazon.com pay for common amenities?
Amazon is using two tactics increasingly employed in an age of globalization and high unemployment: Playing states off against each other and seeking the most favorable tax environment to boost profits. This plays out against the greatest state fiscal crises since the Great Depression, as well as an unsustainable federal deficit.
Special to The Seattle Times
To see the transformation of the South Lake Union district in Seattle with Amazon's new corporate headquarters and its thousands of well-paid headquarters jobs, it's hard to feel anything but love for the giant online retailer.
The view is different in places such as Los Angeles, where the Mystery Bookstore, a beloved fixture in the city, is closing. A major reason: "Unfortunately, we, too, are going the way of too many independent bookstores. We simply cannot compete with the Amazons of the world and the impact of the economy," the owners wrote in an e-mail earlier this month.
One of Amazon's major advantages is that it must charge sales tax in only a handful of states. In most places, it enjoys a commanding tax-free edge over local bookstores.
But Amazon's gaming of the tax system doesn't stop there. As The Seattle Times' Amy Martinez reported last week, the company also leans on states where it puts distribution centers not to impose sales taxes on its products. Tennessee is one example, where the state is already giving Amazon $12 million in tax breaks and other incentives to land 1,400 jobs at two warehouses.
Amazon is using two tactics increasingly employed in an age of globalization and high unemployment: playing states off against each other and seeking the most favorable tax environment to boost profits.
Washington saw this when Boeing snagged lavish incentives to locate a second 787 Dreamliner assembly in South Carolina — even though Olympia had already given Boeing $3.2 billion in tax breaks to ensure the first 787 assembly.
This plays out against the greatest state fiscal crises since the Great Depression, as well as an unsustainable federal deficit. Amid all the discussions of government belt-tightening and Americans views that taxes should always go lower, a fundamental question is lost: What about the commons?
In other words, the infrastructure, education, parks and other public assets enjoyed by all and play a big role in competitiveness. Do corporations, particularly transnational giants, have an obligation commensurate with their size and profits to these American resources which they use, too?
The Business Roundtable, which claims to represent the largest corporations with $6 trillion in revenues and 13 million employees, said in a prepared statement after President Obama's State of the Union: "Today, the U.S. has a noncompetitive international tax system, and our companies will soon pay the highest rate among all developed countries. We need to redesign the system so it addresses the hypercompetitive global marketplace. A stable, reliable, equitable and nondiscriminatory tax system that provides a level playing field is essential for long-term economic growth and job creation."
In reality, corporate taxes make up around 10 to 12 percent of total federal revenues, but that compares with 28 percent in the 1950s and 21 percent in the 1960s, according to the Center for Budget and Policy Priorities.
Tax rates on the richest individuals were also high: more than 90 percent in the Eisenhower administration. Those were good years for the commons, as well as the middle class, which has seen its wages stagnate for 30 years. Those were years when state universities, schools, parks and infrastructure were well funded — public assets that in many cases we continue to enjoy even as they are under increasing stress.
Conservative groups argue that the U.S. marginal tax rate on corporations is too high. Yet it's lower than in many European countries, including export powerhouse Germany. And even this misses the point.
As David Cay Johnston, the two-time Pulitzer Prize winner at The New York Times, detailed in his book "Perfectly Legal," transnational corporations use a variety of elaborate techniques to avoid taxation, in many cases paying no taxes at all. One major strategy is to park offshore earnings — estimated last year at $1 trillion — in overseas tax havens. Johnston criticizes this advantage that global companies enjoy over domestic firms.
The earnings can be repatriated, tax free, for certain purposes, such as acquisitions. For example, Bloomberg reported that Merck repatriated $9 billion to help finance its acquisition of Schering-Plough. These corporations employ large resources to game the tax code.
Getting tax breaks from states is another advantage. Kenneth Thomas, a political scientist at the University of Missouri-St. Louis, has studied the phenomenon and estimates the giveaways are worth $70 billion a year.
As states beg for jobs and corporations reach record profits, Johnston's question from "Perfectly Legal" is more on point that ever: "We need to ask ourselves if adding to the gross domestic product is the only, or even the primary, measure of our society? If a tax increase slowed the economy today but financed a college education for every student with top grades, would it be worth it?"
Yet America's not going there. The argument for now has been won by those who say corporations have no social obligation but exist only to make maximum profits for shareholders. That seemed acceptable in better times, even as the political power of major corporations increased. Now, as high unemployment continues, poverty rises and the civilization Americans of a certain age once took for granted are at risk, it seems less convincing.
Jon Talton: email@example.com
About Jon Talton
Jon Talton comments on economic trends and turning points, putting them into context with people, place and the environment in the Pacific Northwest