We live in a tech-driven world — so it should come as no surprise that big tech companies are reporting record revenues, making more money and selling more product than ever. At the same time, however, these companies’ tax payments don’t seem to match their success.
According to new research from Fair Tax Market, six of Silicon Valley’s biggest business may have skipped out on more than $100 billion in taxes last decade.
These tax practices have led some to argue that big tech isn’t paying its fair share — and should be subject to higher taxes. Others, urging caution, have said that there could be a huge number of potential negative effects to hiking taxes on the sector.
Here’s the evidence for the arguments on both sides, as well as how the lawmakers are responding to the discussion.
How Big Tech Lowers Its Tax Burden
Those in favor of higher taxes generally argue that the $100 billion tax gap between tax provisions — how much a company budgets for taxes — and tax payment amounts to tax avoidance.
Supporters of higher taxes are also generally in favor of closing loopholes that allow companies to shrink their tax burden — or eliminate it, as with Amazon, which famously paid $0 in federal income tax in 2018.
These missing taxes, they argue, could have been used to pay for government services, upgrade infrastructure, and strengthen the supports that the economy needs to keep running.
Some European countries, aware of the tax revenue they’re missing out on, have already begun to levy harsher taxes on big tech companies — like France, which imposes a three percent tax on companies with global revenues greater than €750 million and revenues in France greater than €25 million. The UK and Italy are considering similar taxes.
The US government, in retaliation, has threatened tariffs on France if it continues to impose the three percent tax on large foreign businesses.
Calls for tax reform have also inspired new legislation in the US — like the proposed short-term SALT cap repeal, which would increase income tax on top earners while nixing the current limit on state and local tax deductions.
Why Not Tax Big Tech
Others, however, argue that taxing big tech more wouldn’t be the right move.
Opponents of higher tax rates have been quick to point out that the research from Fair Tax Mark focused on the difference between tax provisions, the amount companies budget for taxes, and the final tax payment made to the government. Saying that these companies skipped out on taxes could be seen as misleading, as they still paid all of the taxes they were obligated to by local laws.
The opponents to higher taxes on the tech sector also argue that increasing taxes would make it harder for these companies to continue investing in the countries where they operate. Amazon, for example, invested around $60 billion in Europe during the 2010s. That may not have been possible, the argument goes, if Amazon had been subject to a steeper tax rate.
It’s also not uncommon for big tech companies to operate with lower profit margins than traditional retailers. As a result, higher tax burdens — even if they don’t seem significant from the perspective of those outside of Silicon Valley — may make online retailers like Amazon less competitive against brick-and-mortar alternatives. This could ultimately weaken companies like Amazon over the long term, hampering tech sector growth and discouraging new investment.
The Argument Around Big Tech’s Tax Share Continues
The discussion around Silicon Valley’s taxes is likely to continue into the near future as lawmakers weigh possible responses to the tax.
So long as big tech companies continue to take advantage of tax loopholes to pay less, there will probably be those who argue for a stricter tax code that asks businesses to pay more.
At the same time, opponents are likely to respond that higher taxes could be unfair to big tech, and that asking more from the companies could make them less competitive and ultimately reduce the amount of money they invest in the economy.
Some European governments have already responded to calls for higher rates, levying their own new taxes and possibly instigating a trade war with the US.