Sun11182018

Last updateFri, 16 Nov 2018 5pm

Politics

Trump’s Attack on Amazon Signals Disconnect Between Government and Big Business

default article imageAmazon, led by Jeff Bezos, has undergone a widely publicized ascendance to become one of most valuable global companies. The world watched it enjoy unprecedented growth and expansion with notable milestones such as the release of Alexa, a first of its kind voice assistant, and the acquisition of Whole Foods.

According to a report by CNBC, the company’s most recent fourth quarter earnings yielded revenues of $60.5 billion, blowing past Thomson Reuters’ initial projections of $59.83 billion.

The company’s net income at the close of 2017 was $1.9 billion, more than double the former year and a record high for the company. The close of the fourth quarter also included a $789 million tax benefit, a direct result of the recent change to the U.S. tax code which passed in December 2017.

In Amazon’s early days, the company’s central business model was constructed with the prioritization of growth pursuit over profits, routinely underpricing their products, and placing a higher value on consumer welfare and gaining popularity.

Even with massive sales, the company still prices products below market value. Its emphasis on consumer welfare, which it defines as short-term price effects, was often criticized by economists and deemed ill to compete in the capitalist marketplace.

In a series of recent tweets spanning from March 29 until April 3, President Donald Trump scrutinized Amazon, calling it a “no tax monopoly,” while accusing it of “pay[ing] little to no taxes to state and local governments.”

His additional criticisms include excessive use of the United States Postal Service (USPS) and accusing Bezos of misusing his ownership of The Washington Post as a medium for advancing his own political agenda.

The claims regarding Bezos’ misuse of The Washington Post have been largely unfounded, as verified by Politifact. However, Amazon has been greatly increasing its lobbying efforts; the company currently employs one of the largest lobbying staffs in Washington D.C.

Amazon’s recent spending on lobbying efforts totaled $15.4 million this year, a figure $3 million more than the previous year, according to Reuters.

The USPS’s ongoing decline has been attributed to a multitude of factors such as the decreasing use of paper and first class mail, compounded by billions of dollars in operating costs, according to Politifact.

In order to offset some of these losses, the USPS engages in contracts with private companies, thus securing some net gains in the package market.

Amazon’s discount rate is not public knowledge, but the company reports that USPS is only responsible for about 40 percent of its deliveries, specifically “last mile delivery.” Under this agreement, Amazon completes the bulk of the delivery and sorting, before the door delivery is completed by the USPS.

The Independent Postal Regulatory Commission reviews all engagements in which the agency enters, while the 2006 Postal Accountability & Enhancement Act made it illegal for the USPS to provide parcel delivery services below cost margins.

On Friday, April 13, Trump issued an executive order which requires an official audit to be conducted on the Postal Service’s finances.

“The Amazon deal did not dramatically increase the operating costs of the USPS; postal workers already go to every house in the country each day, so they did not need a massive restructuring of their operation,” said Stephen Chapman, Ph.D., an assistant professor of political science.

A recent report by the Institute on Taxation and Economic Policy found that Amazon is either still failing to collect local taxes, or is evading them by charging a lower tax rate than smaller, local retailers are in states such as Alabama, Alaska, Idaho, Iowa, Mississippi, New Mexico, and Pennsylvania. This behavior isn’t new or unique to Amazon, but the options for government regulation are limited since the company is not considered a true monopoly.

 “There isn’t much Trump could do to regulate Amazon any more than they already are. While Amazon has a history of avoiding taxes when possible, this is a common strategy of large corporations,” said Chapman. “They use their vast resources to minimize their tax liability.”.

Amazon has also been hosting a competition to determine which city the company will build its new $5 billion second headquarters, which will be known as HQ2.

The company claims that the headquarters will generate 50,000 new jobs, at least $38 billion in revenue to the local economy, and even boost the income of non-Amazon employees by $17 billion.

“It’s not surprising to see states compete for a large in-state presence from Amazon. It means a lot of new jobs and infrastructure for a state; most governors would be lining up for that opportunity,” said Chapman.

“States offer incentives for business that will ultimately lead to jobs and a stronger state economy, and reelection,” he said.

For cities vying for the title of housing the powerhouse HQ2, they must submit proposals that are rich in highly competitive tax breaks and incentives to Amazon.

Allowing Amazon to receive such multi-billion dollar incentives will trigger a tremendous redirecting of taxpayer funds away from schools, infrastructure, health care, and other local programs.

The Wall Street Journal reported a five percent drop in Amazon stock following Trump’s comments, translating to a $60 billion loss for the company.

The extent to which the government is allowed to intervene with the capital market and expected to exert regulatory oversight is limited.

Following the testimony of Facebook CEO Mark Zuckerberg in both the House and Senate this week, large scale tech businesses and their relationship with the government has also been a source of increased debate.

Amazon has undeniably restructured the way in which Americans shop, while essentially re-writing the rules for e-commerce. Its success has incited competitive innovation in multiple industries, which bodes well for consumers. While the company has been scrutinized for exhibiting monopolistic-like behavior, it still only accounts for approximately 44 percent of all e-commerce conducted in the U.S.

Despite Trump’s strong feelings against the company, there are no additional steps that the government can take as of right now to regulate the company or minimize its influence, until it swells to true monopolistic proportions.

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