WASHINGTON – In fiscal year 2017, FedEx owed taxes in excess of $ 1.5 billion . It did not owe anything next year. What changed was the tax cut by the Trump government – for which the company had made a strong case.
The public face of his lobbying, to which belonged a separate tax proposal was the founder and CEO of FedEx. Frederick Smith, who repeatedly aired to defend the power of tax cuts . "If you make the US a better investment location, then it's no question for me that capital investment will pick up again," he said on a radio broadcast in August 201
Four months later, President Trump signed the $ 1.5 trillion tax cut that became his legislative achievement. FedEx was able to make big savings and bring the effective tax rate from 34 percent to . in the fiscal year 2017 to less than zero in the financial year 2018, which means that in total the government technically owed their money. But it did not increase investment in new equipment and other assets in the following fiscal year, as Mr. Smith said that companies like him would do.
Almost two years after the passing of the tax bill, it was a coincidence for companies like FedEx to realize it. A New York Times analysis of the data compiled by Capital IQ shows no statistically meaningful relationship between the level of tax cuts received by companies and industries and the investments they make. If anything, the companies that have received the largest tax cuts have on average increased their capital investment less than companies that have received smaller reductions.
FedEx's financial statements show that the law has so far saved them at least $ 1.6 billion. The financial records show that in fiscal year 2018 total no taxes were owed. Company representatives said FedEx has paid a total of $ 2 billion in income taxes over the last 10 years.
In terms of capital investment, the company spent less in the 2018 financial year than it had forecast in December 2017. passed before the tax law. 2019 was even less. Much of his savings went to shareholders' rewards: FedEx spent more than $ 2 billion on share buybacks and dividend increases in the 2019 fiscal year, after $ 1.6 billion in 2018 and more than twice that amount the company spent on repurchases and dividends in the 2017 financial year.
A spokesman said it was unfair to assess the impact of tax cuts on investments based on the company's annual changes in investment plans.
"FedEx has invested billions in capital items eligible for accelerated depreciation and made significant contributions to our employee retirement plans," the company said. "These factors temporarily lowered our federal income tax, which was the intention of the law to increase G.D. P., create jobs, and raise wages." Companies have already saved more than $ 100 billion in taxes when analysts predicted the law was passed. The companies that make up the S & P 500 index had an average effective tax rate of 18.1 percent in 2018, compared to 25.9 percent in 2016, according to an analysis of the securities filings. For more than 200 of these companies, effective tax rates have dropped by 10 points or more. Almost three dozen, including FedEx, had to accept a drop in their tax rates to zero or the tax authorities owed them money.
From the first quarter of 2018, when the law came into full effect, companies gave up three times as much of additional dividends and share repurchases that would increase a company's stock price and market value rather than increased it investments.
The law lowered the corporate rate from 35 percent to 21 percent, allowing companies to deduct the full cost of new equipment investment the year they make it. These cuts spiked the American economy in 2018, helping to boost economic growth to 2.5 percent and boost attitudes . Business investment increased 8.8 percent in the first quarter of 2018 and was nearly as strong in the second quarter.
However, the impact decreased rapidly.
In the summer, the economy grew by just 1.9 percent, and corporate spending slipped 3 percent, including a 15.3 percent slump in factory and office spending. In the spring, companies spent less on new investment after adjusting for inflation than in winter.
Total investment during Trump's term has now grown more slowly since the tax cuts were passed.
Some conservative economists and business leaders say the effects of tax cuts have been undermined by the uncertainty of Mr. Trump's trade war slowing global growth and causing companies to freeze projects. Other economists say bubbling is predictable because high tax rates did not hold back on investment.
"It was a short-term boost, but it was not the big reaction that many people expected," said Aparna Mathur an economist at the conservative American Enterprise Institute, who recently concluded that that Law of 2017 did not change investment patterns in America significantly.
Mr. The 75-year-old Smith, a former navy who has upgraded FedEx from a small parcel delivery service to a global logistics giant, was no stranger to pushing for lower taxes. He unsuccessfully tried to get President Barack Obama to cut interest rates. But with Mr. Trump's rise, the company's CEO began a one-man campaign to convince Washington that now was the moment. He met with the elected president at the Trump Tower on November 17, just days after the election, and appeared at official events with the president.
In a conference call with analysts a month after the election of Mr. Trump. Alan Graf FedEx Chief Financial Officer, called the prospect of a 20 percent corporate income tax rate "a great Christmas present."
Mr. Smith teamed with his rival David Abney the chairman and chief executive of UPS, to demand a tax overhaul, including the joint drafting of a in the Wall Street Journal
. "Fred and I even had some joint meetings with key people, and we both put a lot of pressure on them," Abney said in a recent interview.
FedEx spent $ 10 million on lobbying in 2017, which is consistent with previous issues. According to the US federal government, much of it focused on tax issues. The team went to great lengths to make the bill behind the scenes and regularly met with representatives of the House of Representatives and the Senate to draft the bill.
Mr. Smith met with Mr. Trump and Vice President Mike Pence in February 2017 and spoke to Steven Mnuchin, the Minister of Finance, on May 26, according to Mr. Mnuchin's public calendar.
Eight months after the passing of the bill by Congress Mr. Trump has celebrated the tax cuts by taking Mr. Smith and other business leaders at a dinner in his Bedminster, N.J., golf club. He picked Mr. Smith several times and joked with him about a housework Mr. Smith had written as a Yale student. The paper formed the basis for the founding of FedEx.
The following week, Mr. Smith boasted in the company's annual report that his company was influencing the law that FedEx "invests more than $ 4.2 billion in our employees and employees. Our network as a result of the tax law. "
FedEx increased headcount by approximately 4 percent in FY 2018 and approximately 7 percent in FY 2019 .
The company accelerated previously planned wage increases for hourly employees by six months. It gave other managers a performance-based compensation (19459004) and (19459004) promised to invest $ 1.5 billion over a seven-year period in its Indianapolis Maritime Center. The company also purchased 24 Boeing cargo jets for $ 6.6 billion. According to sales officials, this would not have been possible without tax cuts.
However, the company ended its 2018 fiscal year after spending $ 240 million less on capital investment than it expected in December 2017, just before the tax cuts passed. The Company's investments decreased by nearly $ 175 million in fiscal 2019.
This year, the company reduced employee premiums and offered buy-outs to cut labor costs global growth. The company also added to its pension fund, with the added benefit of reducing the tax bill even further.
FedEx partially reduced its tax liability by making use of a legal provision that allowed companies to immediately deduct the value of capital investments they had made in a given year. However, the largest gains were achieved by lowering the key interest rate. FedEx had recognized a large number of future tax liabilities in its balance sheet – and when the corporate rate fell to 21 percent, these liabilities also fell .
"Something like $ 1.5 billion in future taxes they had promised to pay just vanished," said Matthew Gardner an analyst at the Liberal Institute for Taxes and Economic Policy in Washington , "The obvious question is whether you can draw a line between the tax credits supposedly used to promote capital spending and what they actually do and it's simply impossible to know."