Get ready for the debate of the century — and we’re not talking about the Democratic primaries. That is, get ready if New York Times publisher A.G. Sulzberger has the cojones to face off against a very angry FedEx CEO Fred Smith. The NYT ran an analysis of FedEx’s taxes and accused the company of lobbying for the big tax reform of 2017 on the basis of increasing investment in the US economy — and then reneging on the promise:
In the 2017 fiscal year, FedEx owed more than $1.5 billion in taxes. The next year, it owed nothing. What changed was the Trump administration’s tax cut — for which the company had lobbied hard.
The public face of its lobbying effort, which included a tax proposal of its own, was FedEx’s founder and chief executive, Frederick Smith, who repeatedly took to the airwaves to champion the power of tax cuts. “If you make the United States a better place to invest, there is no question in my mind that we would see a renaissance of capital investment,” he said on an August 2017 radio show hosted by Larry Kudlow, who is now chairman of the National Economic Council.
Four months later, President Trump signed into law the $1.5 trillion tax cut that became his signature legislative achievement. FedEx reaped big savings, bringing its effective tax rate from 34 percent in fiscal year 2017 to less than zero in fiscal year 2018, meaning that, overall, the government technically owed it money. But it did not increase investment in new equipment and other assets in the fiscal year that followed, as Mr. Smith said businesses like his would. …
As for capital investments, the company spent less in the 2018 fiscal year than it had projected in December 2017, before the tax law passed. It spent even less in 2019. Much of its savings have gone to reward shareholders: FedEx spent more than $2 billion on stock buybacks and dividend increases in the 2019 fiscal year, up from $1.6 billion in 2018, and more than double the amount the company spent on buybacks and dividends in fiscal year 2017.
FedEx provided a response to the NYT for the story, arguing that FedEx had made significant investments after the tax cut:
“FedEx invested billions in capital items eligible for accelerated depreciation and made large contributions to our employee pension plans,” the company said in a statement. “These factors have temporarily lowered our federal income tax, which was the law’s intention to help grow G.D.P., create jobs and increase wages.”
Fred Smith took it a bit more personally. In a statement issued last night just hours after the NYT story hit the Internet, Smith blasted the story as “distorted and factually incorrect,” and showed he’d been doing some research of his own — on the NYT:
The New York Times published a distorted and factually incorrect story on the front page of the Sunday, November 17 edition concerning FedEx and our billions of dollars of tax payments and billions of dollars of investments in the U.S. economy. 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% 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.
That’s gotta hurt. The personal insult over “a rounding error” aside, albeit with a hearty chuckle, how did the New York Times avoid paying taxes in 2017? And if in fact they did, what business do they have pointing a finger at FedEx for managing to accomplish the same thing, assuming that’s what actually happened? That’s a mighty big glass house in which to be living while simultaneously throwing stones.
Smith threw down the gauntlet on the heels of that insult:
I hereby challenge A.G. Sulzberger, publisher of the New York Times and the business section editor to a public debate in Washington, DC with me and the FedEx corporate vice president of tax. The focus of the debate should be 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.
I look forward to promptly hearing from Mr. Sulzberger and scheduling this open event to bring further public awareness of the facts related to these important issues.
NYT reporter Nick Confessore noted on Twitter that Smith’s challenge includes his use of a second, ie, FedEx’s top internal tax accountant. That led my friend Jim “Uncle Jimbo” Hanson to make a counteroffer (via Twitchy):
They should make Sulzberger bring Paul Krugman
FedEx will kick the crap out of them for sure then https://t.co/cthD5Pwdww
— Jim Hanson 🇺🇸 (@JimHansonDC) November 18, 2019
All of this tends to overshadow what is actually in play with the tax reform package, especially the NYT’s narrow take on it. The tax reform package resolved a longstanding problem in corporate taxation on foreign income that made US firms like FedEx less competitive in foreign markets and locked capital outside of the country. As soon as the bill passed, those companies began immediately repatriating the capital to the US and announced massive new investments here — some in the form of higher labor compensation, but many in new long-term projects here.
Just one example of this was United Technologies, which laid out plans to add 35,000 jobs thanks to investments it could now make in the US because of the resolution of the foreign-capital issue, as well as generally more favorable tax rates. Apple was another, pledging $350 billion in new domestic investments, and there were many more stories such as these from early 2018. It’s very curious why the NYT chose to focus on FedEx rather than, say, follow up on the deluge of similar domestic-investment announcements that followed passage of the tax-reform bill.
Or maybe they did, and the answers didn’t suit their narrative. If they thought they could manufacture a more preferable narrative at the expense of Fred Smith, however, the NYT and Sulzberger just found out Smith fights back and can craft a narrative or two on his own. The debate should be delicious … if the NYT gathers the testicular fortitude to show up.