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What is the Value of Amazon, If Not for Government?

Bezos Laughing

Amazon CEO Jeff Bezos recently sold about $3.1 billion worth of shares in his company, according to filings with the Securities and Exchange Commission compiled by OpenInsider. Bezos says he was selling about $1 billion of Amazon stock a year to fund his space exploration company, Blue Origin. Amazon shares are on a terror this year and are up an impressive 73% for the year. 

Though Amazon has done some amazing things, one does have to ask the question of how much Amazon is a company or an extension of government, often called corporatism. Corporatism is the organization of a society into industrial and professional corporations serving as organs of political representation of government and exercising control over persons and activities within their jurisdiction. Many believe that corporatism is a distortion of the free market that benefits a few at the expense of the broader population – or picking winners and losers. Jeff Bezos is the world’s wealthiest person for the third year in a row. Has his wealth primarily been due to this corporatism? Let’s examine the government relation with Amazon and postulate what it’s true value would be if the government was not part of Amazon and what benefits society at large receives from this relationship.

As Amazon builds up its distribution network, it’s hit on a trick long practiced by the likes of many large companies: using the federal government to help pay its workers. A new study by Policy Matters Ohio found that more than 700 Amazon employees receive food stamps (SNAP) or more than 10 percent of the tech giant’s 6,000-strong workforce in the state. Amazon’s total number of employees in 2019 was 798,000. The average SNAP recipient in 2018 received $127 a month in assistance. This represents an Amazon government subsidy of about $121,615,200 if extrapolated to all the Amazon’s employees.

Amazon has had a long history of baiting local governments to receive incentives to locate their distribution centers and other parts of their operations in their locale. According to the subsidy tracer of Jobs First, Amazon has received $2,379,871,238. You can check out the list state by state for these subsidies. A more recent, well-published local subsidies, was the implementation of Amazon’s 2nd headquarters in the New York area of $2.4 billion.

It has been postulated that Amazon has avoided $20.4 billion in sales taxes in the past. Dean Baker and Evan Butcher did a rough calculation showing that if Amazon had always been required to collect sales taxes, it would have collected a total of $20.4 billion in sales taxes from its founding in 1994 through 2015.  This has the effect of allowing Amazon to sell at a lower cost than local competitors. Trump has repeatedly tweeted that Amazon doesn’t pay any sales tax on many things it sells. He also complained that Amazon is so good at the art of the deal that the U.S. Postal Service loses money on each one of the millions of packages it delivers for the online retail giant. Though this is a hard number to validate, and states are slowly closing the loopholes of cross-state sales, the amount could be considerably higher when taking in Amazon’s global reach.

Amazon is no stranger when it comes to obtaining government contracts. However, Amazon did not win the recent big Pentagon cloud computing contract from the government. But Amazon won’t take no for an answer. Amazon spawned a lawsuit filed last November, challenging the Pentagon’s awarding of the $10 billion JEDI cloud contract to Microsoft. It alleges that President Donald Trump’s oft-expressed, seething animus for Amazon and Jeff Bezos, who caused Pentagon officials, “consciously or subconsciously,” to award the contract to Microsoft. 

Even Bezos’ love, Blue Origin, is one of three recipients of a $2.3 billion Department of Defense (DoD) contract, meant to ensure the military’s rocket launch technology is developed and manufactured domestically.

But all these government benefits are just a small part of how Amazon receives benefits from the government. Though legal, the tax avoidance schemes for large businesses can be breath taking. The devil is in the detail. Let’s examine Amazon’s performance over the past 10 years since the year 2010.  See the table below and let’s make a few observations (note that the numbers are in millions):

Year Tax Paid Gross Profit (*) Corporate tax rate Theoretical Tax unpaid Market cap Unpaid theoretical tax with investment value @ 5%
2019 $2,374.00 $114,986.00 21.00% $21,773.06 $933,740.00 $22,889.00
2018 $1,197.00 $93,731.00 21.00% $18,486.51 $719,800.00 $20,430.00
2017 $769.00 $65,932.00 35.00% $22,307.20 $561,350.00 $25,916.00
2016 $1,425.00 $47,722.00 35.00% $15,277.70 $360,520.00 $18,600.00
2015 $950.00 $35,355.00 35.00% $11,424.25 $309,520.00 $14,670.00
2014 $167.00 $26,236.00 35.00% $9,015.60 $143,460.00 $12,170.00
2013 $161.00 $20,271.00 35.00% $6,933.85 $182,360.00 $9,839.00
2012 $428.00 $15,122.00 35.00% $4,864.70 $117,910.00 $7,258.00
2011 $291.00 $10,789.00 35.00% $3,485.15 $78,410.00 $5,466.00
2010 $352.00 $7,643.00 35.00% $2,323.05 $80,460.00 $3,830.00
  $8,114.00 $437,787.00 29.27% $115,891.07   $141,068.00

(*) Gross profit can be defined as the profit a company makes after deducting the variable costs directly associated with making and selling its products or providing its services.

The Small Business Administration says that the effective tax rate for small businesses is 19.8 percent. For Amazon, the average over the past ten years was about 1.85 percent. Perhaps all these small businesses are just stupid, or government regulations make winners out of larger players, at the expense of smaller players. What if government tax regulations treated all sizes of businesses equally? Economies of scale may be useful in production, but in tax regulation, it may be a step too far.

One can debate whether these government regulations overall make the economy better, but we have computed the theoretical tax unpaid based upon the stated corporate tax rates with no deductions. The theoretical tax unpaid over the past ten years would have been $115,891. At an investment value of 5 percent, this theoretical tax unpaid tax rises to $141,068. Adding on all of the other government benefits outlined above, conservatively $24,000, this grows the theoretical tax unpaid to $165,068.

Given that the market valuation of Amazon was $80,460 in 2010, and it has risen to $933,740 by 2019, this represents an investment value rate of about 25 percent per year. If we attenuated the Amazon profit by the investment adjusted theoretical tax unpaid of $165,068, this would reduce the investment value rate to 15.57 percent. This would mean that the adjusted market valuation would be marked down to $381,946. This is less than half of the market valuation in 2019.

One can understand that you may think that many of the corporatists accounting rules and government regulations are good for the economy. After all, didn’t Amazon create 798,000 jobs, providing many products at reduced prices with great fulfillment? But one also needs to look at the other side of the trade. For every Amazon created, how many were lost? And not just because of online disaggregation. 

What if business taxes, sales taxes, and all these other government incentives were zero? No doubt that online businesses have proven to be a good business model. But if all government advantages were removed, perhaps we would see instead, hundreds of smaller to medium-sized online businesses – with several logistic fulfillment company choices. In a framework like this, these companies may provide even better prices and better fulfillment, with even more diverse products. Profits would be held by many companies via the natural free-market dispersion to these new companies based upon their own merits of management and innovation. More innovators held by more people, in the end, may make a better and resilient economy. In an environment like this, perhaps Amazon wouldn’t even be close, in terms of market valuations that they have today – perhaps not even existing at all. 

Does this make the true value of Amazon near zero, if not for the government?

Bezos being a clever man, needs to be able to control the public narrative via media and lobbying government to solidify his grip on milking the government cow without the people questioning his activities. Perhaps even cheering Bezos on as the most successful businessman of our time. At the time, many thought the Bezos purchase of the Washington Post back in 2013 made little sense. Now in hindsight, it was a brilliant strategic move in his overall corporatist game. 

Why should you care? There is a trifecta of economic moral hazard, Fiat Currency Debasement, trade, and government-corporate corruption. The latter, corporatism (note that this does not include actual fraud – a story for another time), exacerbates wealth inequality. Whether you like it or not, wealth inequality is the fuel for envy politics and brings on the call for Marxist socialism in some grand redistribution program. But is this a viable or desirable solution?

Many are quick to slam the Leftists Democrat politicians about their Marxism, while at the same time, many Republicans turn a blind eye to corporatism. Two wrongs do not make a right – both corporatism and Marxism, are terrible economic models to follow. They are both mechanisms for the government to distort free-market capitalism. If one ignores these economic distortions, don’t be surprised when the masses rise up in ignorance and demand unfortunate revolutionary change. Perhaps this is the source of many of the protests/riots that we see today on many streets in America, as well as around the world.

 RWR original article syndication source.

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