In what will likely be to the benefit of a red state somewhere, Amazon decided this month to pull out of their plans to locate “HQ2” in Long Island City, which is in a district that borders Alexandria Ocasio-Cortez’s. Back in November, Politico reported that Ocasio-Cortez was assuming a “leadership role in efforts to combat Amazon’s plan to build a new headquarters in Queens,” and as a result, she’s been successful in creating 25,002 jobs fewer than Jussie Smollett.

Following the cancelation, Cortez celebrated the destruction of 25,000 jobs for her district as proof that “anything is possible.”

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When questioned directly, she justified her alleged logic by stating “We were subsidizing those jobs. Frankly, if we were willing to give away $3 billion for this deal, we could invest those $3 billion in our district, ourselves, if we wanted to. We could hire out more teachers. We can fix our subways. We can put a lot of people to work for that amount of money if we wanted to.” No – no we can’t.

Cortez seems to be under the impression that Amazon was literally being handed $3 billion dollars, when in reality, Amazon would’ve been granted credits against future taxes owed. The three billion in tax credits that Amazon would’ve received would’ve been offset in approximately three years by the benefits; 25,000-40,000 jobs and $27 billion in taxes paid over 30 years.

Of course, this isn’t the end of the world, and the country isn’t any worse off on net basis as a result of Cortez’s incompetence. Some other city will get those jobs now, just not Ocasio-Cortez’s.

Ocasio-Cortez Thinks Amazon Doesn’t Pay Taxes

Also made in defense of her opposition to HQ2, Ocasio-Coretz thinks that Amazon is paying zero dollars in taxes. I read an article in The Observer arguing the same, headlined “Amazon Will Pay a Whopping $0 in Federal Taxes on $11.2 billion in Profits – And No One Knows Why.” It’s a bit odd to see someone explicitly advertising their financial illiteracy in a headline because simply reading Amazon’s 2018 annual report explains exactly why.

Ocasio-Cortez is specifically paying attention to the corporate income tax,  and ignoring the $1.184 billion for state, local and international taxes Amazon did pay in 2018. That aside, the reason Amazon paid no corporate tax on their $11 billion in profit is due to many circumstances unique to Amazon.

For example; Amazon has only recently become profitable in their nearly three-decade history. As such, Amazon is able to carry forward those losses against years they are profitable. While there are some liberals who seem to have a problem with this, it’s common sense accounting. If you as an investor lose $1 million in one year, and then earn $1 million the next year, the IRS will allow you to carry over the $1 million loss and treat you as if you earned $0. Any other system would require some businesses to pay taxes on losses, simply because differing periods of earnings and losses are separated across fiscal years. According to Amazon’s 2018 annual report, “As of December 31, 2018, our federal net operating loss carryforward was approximately $627 million.” Amazon also reported $1.4 billion in federal tax credits on the books to offset future taxable income generated.

Amazon’s stock was under $2 dollars following their IPO – $80 prior to the financial crisis – and recently peaked over $2,000. Because of how stock-based compensation is expensed, this has given Amazon a unique writeoff few firms can benefit as largely from. Suppose you made an agreement to work for Amazon, and part of the package included a stock then valued at $100. As a result, Amazon writes this off as a $100 expense against their income. But then suppose a decade later you sell that same stock for $2,000. In that case, Amazon gets to say “wait a minute, that asset we gave away that we thought was worth $100 was actually worth $2,000” – and receive a $1,900 tax credit on the difference. Amazon acknowledges and explains this expense in their 2018 Annual Report, “We have tax benefits relating to excess stock-based compensation deductions and accelerated depreciation deductions that are being utilized to reduce our U.S. taxable income. Amazon earned themselves a $1.1 billion writeoff in 2018 from stock-based expenses.

Of course, that doesn’t mean taxes are being dodged. They’re being paid by the person who took the stock – and that stock-based compensation is taxed at a higher rate than the corporate tax rate. Stock-based compensation is taxed as ordinary income (not capital gains), so the tax rate on it can be as high as 37%, as opposed to a maximum corporate tax rate of 21% (I say maximum because Amazon has enough deductions and credits to not pay the marginal rate).

Amazon’s annual report also cites the Trump tax cuts for “enhancing and extended the option to claim accelerated depreciation deductions by allowing full expensing of qualified property, primarily equipment, through 2022.  Our federal tax credits are primarily related to the U.S. federal research and development credit.” Amazon had a $419 million tax credit from the research and development credit.

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All of these benefits Amazon is using to offset taxes are temporary and legal. Nothing sinister is going on.

Amazon used to hemorrhage money, and as they turn into a profit machine, they’ll run out of losses to carry forward. Likewise, their stock can’t increase forever, and many tax credits they currently receive will expire.

Can you believe that Ocasio-Cortez didn’t know all this? Probably…