In addition to getting more money from their recent price hike, Netflix is also reaping a windfall thanks to President Trump’s 2017 tax cuts.
A new report from the Institute on Taxation and Economic Policy (ITEP) found that Netflix got away with paying $0 in federal and state taxes in 2018 despite posting $845 million in profits. In fact, the online TV and movie streaming service got a $22 million federal tax rebate thanks to the multiple legal loopholes in the U.S. tax code that benefit multinational corporations.
Netflix argued that it paid $131 million in 2018 taxes, though ITEP clarified that those taxes were paid abroad, not in the U.S., where the company is headquartered.
While the Tax Cuts and Jobs Act was signed into law at the end of 2017, the law didn’t go into effect until 2018, meaning last year was the first year multinational corporations got to take full advantage of the multiple benefits the law gives them, like cutting the federal corporate tax rate from 35 percent to 21 percent.
However, as ITEP pointed out in a 2017 report, Netflix was able to pay rates much lower than that for multiple years in a row through a cunning use of loopholes that already exited prior to the 2017 Republican tax bill.
Netflix [is] one of 100 profitable Fortune 500 corporations that paid a 0 percent federal income tax rate in at least one profitable year between 2008 and 2015. In fact, Netflix did it twice, and paid an average tax rate of 13.6 percent over the eight-year period, meaning that the company sheltered more than half of its profits from the 35 percent federal income tax rate in effect at the time.
Some of the more prominent loopholes exploited by corporations like Netflix include the deferral loophole, in which corporations are able to indefinitely defer U.S. taxes on offshore profits, which ITEP argues is incentive for companies to offshore jobs and profits. Another loophole Netflix likely took advantage of is the executive stock option, in which CEOs are given the option to buy up shares of company stock for a fraction of the price it trades for on the market. The company can then deduct the loss of those shares based on the share’s actual market value.
Because the bulk of Netflix CEO Reed Hastings’ compensation is in stock rather than salary, Netflix likely wrote off the cost of that stock-based compensation to the tune of tens of millions of dollars. In Fiscal Year 2017, $23.5 million of Hastings’ $24.4 million compensation came in the form of stock. In 2019, Hastings is slated to make $31.5 million, with stock valued at $28.7 million making up the bulk of his compensation.
While Fortune 500 companies are enjoying new benefits and savings from the GOP’s tax cuts, everyday Americans are on track to owe more in taxes this year than in years past. In August of 2018, Forbes estimated that approximately 30 million more Americans will owe taxes this year compared to last year, mostly due to changes to state and local tax deductions, the elimination of deductions for job-related expenses, and new borrowing limits on the mortgage interest deduction.
Carl Gibson is a politics contributor for Grit Post. His work has previously been published in The Guardian, The Washington Post, The Houston Chronicle, Al-Jazeera America, and NPR, among others. Follow him on Twitter @crgibs or send him an email at carl at gritpost dot com.