Fred Smith, who built FedEx into the world’s largest privately-owned shipping and logistics firm, challenged the publisher and the business editor of the New York Times to a debate after the Times published a story that said the American Jobs and Tax Cuts Act helped FedEx reduce its tax liability from $1.5 billion in 2017 to nothing in 2018, but did so in ways that did not benefit the economy, as Trump supporters had predicted.
The Times’ point in “How FedEx Cut Its Tax Bill to $0” – subhead: “The company, like much of corporate America, has not made good on its promised investment surge from President Trump’s 2017 tax cuts” – by Jim Tankersley, Peter Eavis and Ben Casselman is that companies have profited from the additional revenue from U.S. corporate taxes being reduced from 35 to 21 percent, but this has not produced the “renaissance of capital investment” Smith predicted in 2017.
Smith lobbied President Trump for the capital gains cut and the change that allows firms to deduct the entire amount of capital costs in the year they are bought rather than have them “depreciate” over five years as previously had been the case. He celebrated with Trump and others at a private dinner at President Trump’s golf club in Bedminster, N.J.
Now, the Times wrote, Smith was hoarding the cash from his taxes being eliminated rather than reinvesting it in the economy. Smith responded with a statement and his challenge.
“The New York Times published a distorted and factually incorrect story on the front page of the Sunday, Nov. 17 edition concerning FedEx and our billions of dollars of tax payments and billions of dollars of investments in the U.S. economy,” the statement began. “Pertinent to this outrageous distortion of the truth is the fact that unlike FedEx, the New York Times paid zero federal income tax in 2017 on earnings of $111 million, and only $30 million in 2018 – 18 percent of their pretax book income.
“Also in 2018, the New York Times cut their capital investments nearly in half to $57 million, which equates to a rounding error when compared to the $6 billion of capital that FedEx invested in the U.S. economy during that same year.”
In FedEx’s annual report, Smith said his company invested more than $4.2 billion “in our people and our network as a result of the tax act.”
It increased its workforce by 4 percent in fiscal 2018 and 7 percent in fiscal 2019, accelerated wage increases for hourly workers by six months, gave performance-based pay to managers, promised to invest $1.5 billion in its Indianapolis shipping hub and bought 24 Boeing freight jets for $6.6 billion – a purchase the company said it wouldn’t have made without the tax cuts.
But, the Times reported, the “company ended its 2018 fiscal year having spent $240 million less on capital investments than it predicted it would in December 2017” and its capital spending declined by nearly $175 million from 2018 to 2019.
He then challenged Times publisher A.G. Sulzberger and the editor of the Business section to a debate with him and his corporate vice president of tax that would focus on “federal tax policy and the relative societal benefits of business investments and the enormous intended benefits to the United States economy, especially lower- and middle-class wage earners.”
The Times never acknowledged that the tax breaks have led to the most economic expansion in more than a decade, record employment, record low unemployment among African-Americans, Latinos and women, and wage growth that has outpaced inflation by 3:1.
It does admit what bothers the left most about the tax cuts. FedEx, it wrote in the story’s final paragraphs, got most of its reduction in tax liability because it carried “a large amount of future tax liabilities on its balance sheet – and when the corporate rate fell to 21 percent, those liabilities shrank too.”
“’Something like $1.5 billion in future taxes that they had promised to pay just vanished,’” the Times quoted an economist saying.
Photo by ethnosax