US companies are too focused on the short term. Except when they think long term. But that’s bad, too, apparently.

By James Pethokoukis of AEI.

"Many Democrats, including Elizabeth Warren, and some Republicans, including Marco Rubio, complain that businesses aren’t investing enough because of corporate short-termism driven by shareholders looking for high returns ASAP. (Spoiler: This doesn’t actually seem to be true.) Back during the 2016 presidential race, Hillary Clinton called the phenomenon “quarterly capitalism.” If only more businesses looked to the distant horizon and invested accordingly.

So what’s a good example of long-termism, properly understood? How about retailing giant Amazon? It does a whole lot of investment, some $200 billion since 2011, including huge amounts on R&D. And a review of the US tax code suggests that Amazon is doing exactly what Washington wants American corporations to do: invest. Companies can avail themselves of a R&D tax credit as well as a temporary provision that allows them to deduct 100% of the cost of new investments. As the company puts it, “Congress designed tax laws to encourage companies to reinvest in the American economy. We have.”

Amazon’s statement was a response to this Joe Biden tweet: “I have nothing against Amazon, but no company pulling in billions of dollars of profits should pay a lower tax rate than firefighters and teachers. We need to reward work, not just wealth.” But the point of those pro-investment tax provisions is to encourage investment that leads to higher productivity and higher living standards. 

And as to the basic charge that Amazon paid no 2018 federal taxes, ace Wall Street Journal tax reporter Richard Rubin explains it this way:

A closer look at the internet giant’s tax disclosures over several years paints a more complicated picture: Amazon has paid income taxes somewhere, albeit at a low rate, likely helped by deductions and incentives related to investment, research and employee compensation…. Did Amazon really pay no taxes for 2018? We can’t know. Amazon’s tax returns are private, and its financial statements disclose costs in terms designed for shareholders, not policy makers: It includes accounting measures of taxes, which differ from tax-return calculations. … By one measure — comparing pretax U.S. profit and the company’s “current provision” for U.S. income taxes — Amazon earned $11 billion and had a tax bill of negative $129 million in 2018, essentially getting a net benefit from the tax system. … But the current provision isn’t the same as the bottom line of Amazon’s 2018 tax return. Instead, the current provision is an accounting measure of the company’s near-term tax cost. It is an estimate of the 2018 tax bill plus settlements of past disputes, changes to past projections and updates to reflect new regulations and laws. Amazon’s total effective tax rate for 2018 was 11%, including that current provision but also adding in foreign, state and deferred taxes. … What’s the right way to determine what Amazon actually pays? There’s no right way, and each year is a snapshot. Longer views can help. From 2012 through 2018, Amazon reported $25.4 billion in pretax US income and current federal tax provisions totaling $1.9 billion. That is an 8% tax rate — low, but not zero or negative. Looking back further, since 2002, Amazon has earned $27.7 billion in global pretax profits and paid $3.6 billion in global cash income taxes, a 13% tax rate.

So it’s complicated. But what’s relatively simple to understand is that Amazon, one of the most innovative companies in the world, continues to plow billions into all sorts of investment, including R&D. Its low tax rate isn’t a problem. Indeed, there is good reason to think it would be beneficial to have a much lower US corporate tax rate at about the level of Amazon’s."