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Amazon: Income Inequality Worsens

The company paid zero federal tax on over $11 billion in profit... and it will do so in the future.
Lidia Staron has been working as a writer, editor and literary coach for 5 years. She contributes articles about the role of finance in the strategic-planning and decision-making processes.
Lidia Staron has been working as a writer, editor and literary coach for 5 years. She contributes articles about the role of finance in the strategic-planning and decision-making processes.

The web giant, Amazon AMZN, which is the one of the largest private employers in the US with about 566,000 employees, and which doubled its profit to $11.2 billion in 2018 from $5.6 billion in 2017, paid zero tax in US federal taxes in 2017 and 2018 and redesigned its corporate structure so it could do so in future.

The average American citizen pays an income tax rate between 10 and 15 percent, but Amazon, which is one of the largest corporations in the world, paid a tax rate at minus one per cent. What a contradictory world we live in. It was not always so – according to ITEP (The Institute of taxation and Economic Policy) as in 2012, the company paid 15.5 percent in taxes, but then changed its structure and approach.

How is that even possible? It’s down to tax credit or a tax break for executive stock options.

But today we will look not into corporate structure but into the other side, the ‘’green grass,’’ which is, how does this affect the middle–class people, the employees and moderate-income taxpayers.

According to a new analysis, US state taxes are making the rich richer and the poor poorer, according to Carl Davis, the research director of ITEP, as quoted by the Washington post.

“On average,” according to ITEP’s analysis, “the approximately poorest 20 percent of taxpayers spend 11.4 percent of their income on state and local taxes, which is 50 percent higher than the 7.4 percent average effective rate for the top 1 percent.” The result is that the total share of post-tax national income flowing to poorer households shrinks as a result of state and local taxes, while the richest households see a boost in their income share after those taxes are applied.”

“Oftentimes the absence of an income tax is interpreted as proof that a state is ‘low tax,’ ” said Mr. Davis. “But while this is true for families with high incomes, it’s often not the reality for low-income and even middle-income families.”

“The cost of regressive taxation is growing larger as income inequality worsens,” Mr. Davis said. “The states are leaving huge amounts of revenue on the table when they choose to levy very low tax rates on high-income earners with surging incomes. That’s revenue that could have been invested in education, or health, or infrastructure in ways that would expand economic opportunity and build broadly shared prosperity.”

While Amazon is continuing to raise their profits, the Amazon warehouse workers across the US, UK and Europe keep meeting harsh reality and also keep trying to speak out about it. Working during peak calendar times – when 60-hour working weeks are mandatory and involve physical labor – workplace injuries are accompanied by the pressure and fear of taking any time off. It is quite simple: the more products sold via Amazon, the more pressure for employees to fulfill the orders. For example, 2018’s Black Friday and the following Cyber Monday were Amazon’s biggest times, when the company itself admits that it sold millions more products than it did in 2017. So who do you think had the most pressure throughout this peak time? We all know the answer, the same human resources pool that is present every day. Sounds ‘’exciting’’ for employees, right?

There have also been conflicting accounts about Amazon’s decision in November of the last year of a $15 minimum hourly wage plan. While some of the seasonal workers admitted positive change, the permanent workers stated that their bonuses were actually slashed which, even when combined with the raise, actually hurt their pay checks. To clarify: Amazon did increase its hourly minimum wage for all employees in the US to $15 per hour, but this increase came with the cost of reduced bonuses and stock options for hourly employees. What’s really interesting here is that Amazon’s fourth-quarter 2018 operational costs hardly reflected the change, with expenses at a similar rate as during the rest of 2018. So was it really a promised wage rise at all? Or was it only a placating response to US Senate pressure to improve the working conditions, treatment and benefits of the employees of the company?

In conclusion, there is only one question: who at the end of the day is the main beneficiary of such a business model? Definitely not the people who earn the $15 per hour under tough conditions, who pay the highest taxes and only then after tax collections have to try to work out how to put gas in their tanks, put food on their tables and cover other necessities.

But Amazon, the third largest publicly listed US company, which recently breached $1 trillion in market capitalization before coming back to a mere $875 billion, is paying zero federal tax. This lost tax will never be invested in education, health or infrastructure of the country, to improve the economic climate in many middle class areas and families.

And it looks like others are following the giant footsteps as the big video streaming company Netflix NFLX had its largest ever profit in 2018 and paid dollar zero in federal or state income taxes.

In what possible way is this beneficial to employees, the community or the country?

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