February 19, 2019
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1 big thing: Filthy rich, owing no tax
Fortune 500 companies have begun to file their annual regulatory reports, and a pattern is emerging. After the Trump tax cut, an outsized number, led by giants like Amazon, GM and Halliburton, owe zero or very little in 2018 U.S. income taxes — or are actually due a refund.
Amid popular anger at establishment institutions, companies earning large profits and paying no taxes risk a serious public backlash.
- For years, tax hawks have railed about companies finagling statutes to whittle down their bill to Uncle Sam — to no effect.
- The difference now is the atmosphere of populist politics: "Rising global activism is forcing companies to reassess the balance of obligations between shareholders and stakeholder, and when highly profitable companies like Amazon pay zero taxes, it undermines confidence in the broader system," Bruce Mehlman, a leading political and corporate lobbyist, tells Axios.
No one suggests that anyone is violating tax laws. But paying or not paying taxes becomes an issue when few ordinary people are afforded the chance to escape the IRS and less and less money is available to fix crumbling infrastructure and struggling schools.
By the numbers:
- GM is claiming a $104 million refund on $11.8 billion in 2018 profit.
- Goodyear is seeking a $15 million refund on $693 million in profit.
- Halliburton will pay $19 million in U.S. income taxes on $1.6 billion in profit.
- Netflix filed for a $22.1 million refund on $845 million in profit.
- U.S. Steel is claiming a $303 million refund on $957 million in profit.
After its HQ2 debacle in New York, Amazon has been under the most intense scrutiny of all — and now over its tax bill. In a report last week, the Institute on Taxation and Economic Policy said the e-commerce giant is seeking a $129 million refund on $11.2 billion in profit.
- It's Amazon's second-straight year owing no tax: In 2017, Amazon filed for a $137 million refund on $5.6 billion in profit.
- Amazon is not a passive player in tax law, says ITEP's Matthew Gardner, who researched and wrote the Amazon report. "Amazon in particular has shaped tax law in its own image. They made the laws by lobbying so persistently and effectively," Gardner tells Axios.
How they are doing it: Companies already were able to chip away at their tax bill when the top rate was 35%. The new rate of 21% approved under the Trump-backed legislation gets them much lower, and then loopholes take effect.
- One windfall for companies cited by ITEP is a new provision allowing for the immediate expensing of capital investments.
Some say the issue is overblown: Chester Spatt, a finance professor at Carnegie Mellon, tells Axios, "I don't think a company should be paying more taxes than it owes, and in fact it has an obligation to its shareholders not to pay taxes it doesn't owe."
- "Is there reputational risk? Would I advise a company to pay a bunch of taxes to avoid that? Probably not. But messaging is kind of important. Companies need to be more sensitive to explaining."
Yet the optics for Amazon may be brutal: Richard Edelman, CEO of the global Edelman public relations firm, points to a PR blow suffered by GE in 2011 when it reported $14.2 billion in profit for the prior year and filed for a $3.2 billion federal income tax refund.
- "Part of trust is transparency in how you do what you do and understanding that you have certain societal obligations," says Edelman, whose consultancy produces the Edelman Trust Barometer.
2. The Walmart juggernaut
As Amazon's market power has sunk big box stores left and right, Walmart seemed next in line for a big hit. But the 56-year-old legacy retailer has been surprisingly nimble as it stares down the formidable everything store.
Erica writes: Walmart today easily beat earnings expectations for Q4 of 2018, giving its stock a 5% boost at one stage. The company reported a whopping 43% year-over-year increase in online sales — for the second quarter in a row.
Backdrop: When Walmart and its big box peers were struggling to compete with Amazon, Walmart took risks by pouring money into sprucing up its stores and spending big to acquire Jet.com, the e-commerce business.
- The company took a temporary hit to invest in itself, says Neil Saunders, managing director of GlobalData Retail. And now it's paying off.
What's next: In a note to investors, Moody's analyst Charlie O'Shea said he expects Walmart to keep dominating retail in 2019. The company will "continue to flex its muscle across multiple product categories," he said.
Go deeper: Walmart, the anti-Amazon
3. Bernie Sanders, AI candidate
In a video announcing his bid for president today, Bernie Sanders, the grandfatherly senator from Vermont, brought up an unusual talking point: artificial intelligence and robotics.
Kaveh writes: Right at the halfway mark of the 10-minute video, Sanders took a stance on the future of work. He said:
"I'm running for president because we need to understand that artificial intelligence and robotics must benefit the needs of workers, not just corporate America and those who own that technology."— Sen. Bernie Sanders
The big picture: For Sanders, who calls himself a democratic socialist, automation's painful effects on labor are a natural target. Other major candidates, like Sens. Cory Booker and Elizabeth Warren, haven't built this issue into their campaign platforms.
- As we've reported, none of the candidates has gone as far as Andrew Yang, a tech entrepreneur who has made AI, robots and automation the centerpiece of his campaign for the Democratic nomination.
Why you'll hear about this again: Darrell West, director of the Brookings Center for Technology Innovation, says that bubbling discontent with Big Tech — the "techlash" — has launched these issues into the spotlight.
"Given public worries about technology and possible job losses, I can see workforce issues and economic prosperity being a central part of the upcoming campaign. Technology has major ramifications for all the big issues on the 2020 agenda."— Darrell West, Brookings
4. Worthy of your time
5. 1 fun thing: Handy Heinlein
Robert Heinlein, author of "Starship Troopers" and "Stranger in a Strange Land," was a lifelong, tinkering MacGyver, according to fellow writer Gregory Benford, who knew him.
Kaveh writes: Heinlein's hijinks included pumping up the pressure in his Santa Cruz house so that dust blew out when the doors were opened, Benford said on Wired's "Geek's Guide to the Galaxy" podcast.
- When Heinlein was offered a "free freeze" — to have his body cryogenically preserved after death — he refused, Benford said.
- So, too, did Isaac Asimov and Ray Bradbury.
- "I think the real reason most people turn it down, including [sci-fi] writers, is that they don’t want to think concretely about the problem of death,” Benford said.