Crunched: the numbers behind big tech's tax avoidance
In a new series looking at numbers behind the news, FT statistics journalist Federica Cocco and data journalist John Burn-Murdoch investigate whether companies are hiding behind philanthropic giving while avoiding tax
Presented by Federica Cocco and John Burn-Murdoch, Directed and Produced by Juliet Riddell, Filmed and Edited by Richard Topping
Hi, I'm John, and I'm a data journalist here at the FT.
And I'm Federica, I'm the FT statistics journalist. In this series, we're going to look at the numbers behind the news headlines. And we're going how you, too, can seek the statistical evidence behind any news story.
A couple of months ago, economic historian Rutger Bregman was speaking at Davos where he raised the issue of philanthropy. And whether the biggest corporations in the world, and their bosses, are being benevolent and generous in the billions that they give. Or whether they're actually avoiding contributing to society by not paying their taxes.
So does he have a point, or are philanthropists just really avoiding tax? And if so, how much?
I heard people talk in the language of participation, and justice, and equality, and transparency. But then, I mean, almost no one raises the real issue of tax avoidance, right? And of the rich are just not paying their fair share.
Ten years ago, the World Economic Forum asked the question: what must industry do to prevent a broad social backlash? The answer is very simple. Just stop talking about philanthropy. And start talking about taxes. Taxes, taxes.
That was interesting.
It obviously ruffled a lot of feathers. And, you know, it's very much of the zeitgeist. We've got Alexandria Ocasio Cortez in the US talking about big tax rates, co-operated labour talking about the same thing over here. But I guess the thing we were chatting about is, like, what are the numbers right behind this?
And what's the big deal? Tax avoidance is legal isn't it? So why are we so worried about it?
Yeah, so technically, you know, tax avoidance is when people use legal methods to declare income in a certain way. And legal loopholes, some people would say. But the point is it's legal. So...
Not the same as tax evasion.
Exactly. Tax evasion, of course, very different. This is where people, perhaps, don't declare income at all. So it's the cash-in-hand economy, the shadow economy, or the high end of the spectrum. It's people who are simply not declaring high income. So, they avoid, they escape the system altogether.
So, shall we have a look at an example of tax avoidance?
Sure, where do you suggest we begin?
How about Amazon?
All right, everyone's favourite delivery company.
I'm going to have a look at how much taxes Amazon paid. But first of all, let's have a look at how much money they made, which is...
...what should be taxed. So, I think it's right here. So, this is in 2016, and then have a look 2017. And then 2018.
Amazon's pre-tax profit, they made £4.5bn pounds, 2017. And made even more, £5.4bn, 2018. Off the charts, literally. 9, 10, 11--
It was something like $11.2bn.
So, the US corporate tax rate - the top rate - until the Republican tax bill came in late last year, was 35 per cent. So, if it was 35 per cent in 2016 and 2017, I guess, I'd expect, for those years, it would be just under $2bn in the first year. And then around $2bn in a second year.
You are wrong. They paid $45m in 2016.
$45m, and these are billions.
Yes. So, I don't know how to show this. Let's just do a little one here.
2017, they actually got money from the government. So, let's add $140m.
2018, I mean...
In 2018 they got $130. So, actually, they got a tax rebate from the government. So, they actually got money and did not pay any taxes.
So what you're telling me is Amazon over that three-year period alone, made about $20bn in pre-tax profits. And, you know, they gave away a bit back to Uncle Sam in 2016.
But then the following two years they got money back. And so, yeah, let's just jot this down. So, that's $20bn over those three years.
Give or take.
And taxes shall put on the right, here.
It paid $450m and then they got back $130m plus $140m, that's...
All right, so...
They're about $270m in taxes paid.
OK, but Jeff Bezos donated $2bn in total, so...
OK, I mean, you know, that's nothing to sniff out. But I've been running some numbers myself, you know, self-confessed massive nerd. And so we said $20bn over those three years. If you go right back to 2009, then it's about $27bn dollars that Amazon have taken in pre-tax profits.
Now, over the entire say, 10-year period... OK, they've done a bit better than the $270m in terms of taxes. But it's still $1bn that they've given to the US government. So we're talking, like, less than 4 per cent of the profits they made there. Despite the fact that, for most of that period, corporation tax was around 30 per cent.et
So, you're saying, good old Jeff, he's given $2bn to his foundation. But if Amazon had paid taxes at 35 per cent - which was the top corporate tax rate until the most recent tax on cut - $9.5bn would have gone in taxes. So, if I do that $9.5bn minus the $1bn, that's a tax gap of $8.5bn.
And Jeff has given $2bn. So, you know, I mean, good on him. But it seems like he and Amazon are still the, sort of, net beneficiaries there.
Let's leave Amazon aside, then. You ever heard of a guy called Bill Gates, and his wife, Melinda?
The name rings a bell.
Something with computers.
When they launched their foundation, they ended up, over this period of time, they ended up donating $35bn dollars.
$35bn is a lot more than $2bn. He's been in the business a bit longer, I'll give him that. But, again, unfortunately, I'm going to have to point to our ledger, here.
And according to a few studies that were done in 2016, Microsoft, of course, the company where he made most of his billions, has been keeping $142bn dollars, offshore, of profit. So, that's profits they made, no tax has being paid on those yet. They're sort of being held indefinitely overseas.
Had they been taxed at 35 per cent, that would have meant $49.7bn would have gone into the US coffers. Again, fantastic that Belinda and Bill have donated money.
But that still leaves a gap of $14.7bn. So, again, I'm loving the philanthropy. But it still looks, to me - based on these you know scrappy calculations - that the money that's being given back isn't quite the money that was taken out of the system in the first place.
OK, so, these are huge corporations, though. And the whole point is that the state is losing this money, in theory. So, how much money is the state losing?
OK, well, I mean, I guess there's a few different scales we can look at this on. So, across the whole world, $500bn billion, according to my research, is lost on tax avoidance each year. So, this is just avoidance again, one of the two things we're talking about.
And then, if we can look at this by country, let's see. So, let's say each unit of money here is $1bn. So, I've got $100bn here, another $89bn. That $189bn is how much tax avoidance there is in the US alone.
I can then look at China, where the figure is a slightly more modest, $67bn in China. Next on the list would be Japan, which is just $47bn. And bringing up the rear - in terms of the Big Four - is India, which is on just...
$42bn. No, $41bn.
$41bn. So the story there being that the US is really the capital of corporate tax avoidance, in other words over $189bn going there.
OK, so $189bn sounds like a lot of money, but what would that actually pay for? I mean, the state is huge.
If I look at the US budget. Let's have a look at what this money could provide. So, education. I think we all care about that. So, going to use some of my handy, little props, here. And $112bn in the latest budget, so let's get some more greens out. Let's say that green is education.
$112bn went on the other stuff that I think we can all agree is really important. So, the supplementary nutrition programme in the US. So, what used to called food stamps. There's about $40bn goes on that.
And then another thing, that I think we can all agree is pretty crucial, is children's nutrition, represented by the milk bottle, there. So, education, food stamps, children's nutrition, all of that. So, yes, $189bn is not the size of the US state, but that could be doing a hell of a lot of good. And instead, it's just, out the system.
One other issue we've not addressed yet is your mates, Jeff and Bill and Melinda.
And they're giving a lot of money to good causes here. But exactly which causes are they giving it to, money? When people donate, is that money going to the same places that it would if the government distributed, or is it going elsewhere?
OK, so, I had a look at philanthropic donations. And we've got 91 per cent of money that is donated to education causes. That comes from...
Is that globally or are we talking about...
This is in the US.
And then 63 per cent of funding that goes to the arts, that comes from wealthy individuals.
Those are pretty impressive figures. I guess, there's two particular holes I'd like to pick in that. And being the annoying soul that I am. So, one thing I looked at on education is, when we talk about philanthropic donations to education here are we talking, you know, the poorest schools in struggling neighbourhoods, are we talking Ivy League schools?
And some stats I saw show that the top 20 Ivy League colleges, so the most elite higher education institutions in the US, they account for only 1 per cent of college places in the US, but 28 per cent of these philanthropic donations. And the other one - I think this is really striking - is, if I replicate your pie chart style, 91 per cent of funding for donations for education from the richest people, great, 63 per cent of donations to the arts from the richest, awesome.
But if we look at the basic needs giving, so, money for people who are really at the bottom end of the spectrum. Only 38 per cent of that comes from high net worth individuals, 62 per cent from the normal man and woman on the street. To my eyes, that shows that the wealthy, when they do give, they give it to things that they benefit from. And not necessarily to others.
Well, I guess neither you nor I think that philanthropic donations can completely wipe out and replace the government. They just serve different purposes.
True, but I would say that, yes, philanthropic giving is good. But if that money is being given to the pet causes of the wealthy - and that money is money that would, otherwise, have gone into government coffers through taxes, and been distributed more evenly - then, for me, that's something we've got to look at.
Yeah, OK. But I'll just add that,- $35bn dollars that Bill Gates gave out, if he'd been taxed on that, it would have never been donated.
True, true. So, the numbers do appear to support Bregman's argument, that corporations are only giving away a small portion of what they own.
On the other hand, others might argue that these two forms of funding are not mutually exclusive. And these billions from philanthropists are still going to a good cause.
We're going to leave links to all the sources that we used below the video. If you've got any thoughts on anything we discussed today, or any suggestions what we do next time, leave a comment.
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