The video conferencing service Zoom saw its revenues soar during the coronavirus pandemic, but the fact the company paid no federal income taxes reveals a dark lesson about our economy, a leading economist explained on Saturday.
"Zoom saw its profits increase 4,000% last year," former Labor Secretary Robert Reich noted.
"But, wait for it, paid no federal income taxes. Zero. Folks, the system is rigged," the Berkeley economics professor concluded.
Reich linked to an analysis by Matthew Gardner of the Institute on Taxation and Economic Policy (ITEP).
"Zoom Video Communications, the company providing a platform used by remote workers and school children across the country during the pandemic, saw its profits increase by more than 4,000 percent last year but paid no federal corporate income tax on those profits," Gardner wrote. "The company reports that it made $660 million of pre-tax profits for 2020, an exponential increase from its $16 million in pre-tax profits in 2019. The immediate shift to online activity explains the company's unprecedented income growth. For many, Zoom has become a ubiquitous daily meeting space, both for work, class instruction, family gatherings and evening happy hours."
The analysis noted that the company, "reduced its worldwide income taxes by $300 million in 2020 using stock-based compensation. As an ITEP report explains, companies that compensate their leadership with stock options can write off, for tax purposes, huge expenses that far exceed their actual cost. This is a strategy that has been leveraged effectively by virtually every tech giant in the last decade, from Apple to Facebook to Microsoft. Zoom's success in using stock options to avoid taxes is neither surprising nor (currently) illegal.
The company also used accelerated depreciation and tax credits for research and development.
"Zoom's corporate tax avoidance has helped create a short-term cash bonanza for the company: Zoom ended the fourth quarter of 2020 with $4.2 billion in cash and equivalents. This prompted one analyst on the company's fourth-quarter earnings call to ask how the company planned to spend it all, to which Zoom's CFO and CEO responded that while they haven't yet mapped out a strategy to deploy their newfound mountain of cash, 'if any of you have any great advice how to do that' they'd love to hear it," the report noted.
https://t.co/HPKj3PFaga— Robert Reich (@Robert Reich)1616276975.0