CEPR - Center for Economic and Policy Research

Multimedia

En Español

Em Português

Other Languages

Home Publications Blogs Beat the Press Washington Post Myths About Its New Owner, Jeff Bezos

Washington Post Myths About Its New Owner, Jeff Bezos

Print
Sunday, 11 August 2013 07:38

In a piece that was ostensibly intended to dispel myths about Jeff Bezos, the new owner of the Washington Post, "Five myths about Jeff Bezos," the paper seemed intent on creating new myths. Its list of myths included two items which are largely true.

Myth # 1 is "Jeff Bezos is destroying independent booksellers." The piece implies that independent booksellers were already well on their way to collapse before Amazon came into existence telling readers:

"The year before, Barnes & Noble and the Borders Group captured nearly a quarter of all revenue from book sales."

With the two big chains getting less than a quarter of revenue, this means that independent stores and smaller chains got more than three quarters of revenue. By contrast, last year on-line sales, the bulk of which went to Amazon, accounted for 48 percent of total sales. While some of this growth came at the expense of the two big chains (Borders has gone out of business), most of it was at the expense of independent book stores.

It is possible to debate whether the loss of independent book stores is a net positive or negative (obviously consumers value buying items at Amazon or they wouldn't do it), but it is absurd to contend that Amazon did not hugely hasten the decline of independent book stores as his newspaper does here.

The other major non-myth on the list is myth #4 that:

"Amazon's key advantage is that it doesn't collect state sales tax."

This is truly a remarkable assertion. If a mom and pop retailer had a website where they offered direct delivery to people's homes, they would be required to collect sales tax on every item they sold. This can run as much as 7- 8 percent in many states. This means that if they delivered an item at the same price as Jeff Bezos, he gets to pocket an additional 7-8 percent of the price paid by consumers. This amount is larger than even successful stores' profit as a share of revenue. (Walmart's before tax profits are typically around 6 percent of revenue.) It is absurd to claim that this was not a huge advantage for Amazon as it became one of the country's largest retailers. (A great test of this proposition would be having Amazon collect double the state sales tax in all of the fifty states for 3 years. According to the Washington Post, this should not be a big deal for the company.)

The piece also misleads readers by implying that Amazon did not aggressively fight efforts to subject it to the same sales tax paid by mom and pop retail outlets:

"Amazon says it is not opposed to the collection of sales tax — as long as there’s a simple, national system that is applied to all sellers, no matter their business model, location or level of sales. With that caveat, it has supported the Marketplace Fairness Act, passed by the Senate this year."

In fact, until very recently Amazon fought hard at both the state and federal level to keep its sales from being subject to the tax. In fact it has threatened to disaffiliate from sellers in states where Amazon was being subject to the tax based on these affiliations. It was only after losing these battles in key states like New York and California that Amazon decided to support national legislation that would make all Internet retailers subject to sales tax. This would ensure that smaller Internet retailers do not enjoy an advantage over Amazon by not having to collect the tax in states where they do not have a physical presence.

The claim about the need for a "simple" tax repeats one of the joke arguments that Amazon put forward to avoid having to collect sales taxes for the last 15 years. They claimed that their programmers were too incompetent to code items to get the correct tax in each of 50 states and a variety of county and local jurisdictions.

Finally, the piece misleads readers by asserting:

"In fact, more than half its [Amazon's] revenue comes from jurisdictions where it collects sales tax."

This claim can only be made now that it has begun collecting sales tax in California this year. It would not have been close to true in 2012 or earlier.

Of course the key point is that after having a huge competitive advantage as a result of an implicit tax subsidy for more than 15 years, Amazon has established itself as a huge player in the market. Once a company has such a big niche in the market it is very hard to dislodge it. For example, since Microsoft became the operating system on the vast majority of PCs in the world it can continue to sell its software even if it were the worst garbage ever invented. In the same vein, Amazon holds an enormous advantage over any upstarts now by virtue of its size. It would have mattered much more if it was required to collect sales tax like everyone else back in 1998 than it does today.

 

Typos corrected from earlier version.

Addendum:

The NYT decided to weigh in on the veracity of the Post's myth #1.

Comments (10)Add Comment
amazing
written by medgeek, August 11, 2013 10:27
Jeff Bezos has enjoyed all the rewards our society confers as he became a zillionare. It's just amazing (but not surprising) that he now misrepresents the process that gave him all this wealth, including decisive tax advantages.
Huge Players & Another Myth
written by Bart, August 11, 2013 10:28

Walmart also delivers now. What percentage of on-line sales do these two monsters represent?

Note that the Post goes nowhere near myth #6: That Amazon pays living wages.
Be Successful, Rich, Anti-Competitive and Counterproductive: The Grover Norquist Program for Choosing Winners Over Losers
written by Last Mover, August 11, 2013 10:35
Once a company has such a big niche in the market it is very hard to dislodge it. For example, since Microsoft became the operating system on the vast majority of PCs in the world it can continue to sell its software even if it were the worst garbage ever invented.


So much for the lauded creative destruction of bloated free rider economic predators who make it to the top on tax breaks denied their competitors, then remain fixed in place for eons for lack of anyone big enough to enter the market and take them head on with competitive alternatives.

Who knew the winners could be successful, rich, anti-competitive and counterproductive all at the same time?

Grover Norquist, that's who. No new taxes on the last guy who made it in the door like Jeff Bezos, who gets to slam the entry door and get a free ride from everyone on the other side who pays taxes on his behalf.
...
written by Kea, August 11, 2013 11:32
Uh-oh --- it's started already. From now on, we'll expect that everything in the Post on Bezos and Amazon is propaganda. And what else?
Amazon does many things which are far more complex than sales tax calculations
written by JDM, August 11, 2013 12:21
I've bought a few things from Amazon over the last year, and learned about their pricing changes, which are frequent and rather complex, so much so that at least one site exists to track these changes and send alerts to you on things you want to buy. These prices can and do change several times a day. I find it difficult to believe that Amazon can create software which changes prices multiple times a day on millions of products yet is unable to create software to to sales tax. Also, they calculate shipping charges on their orders. Shipping from several different sellers - both Amazon itself and its partners - on items of different sizes and weights, with several options for delivery. That is certainly far more complex than adding up an order and applying a sales tax calculation.
Bezos comes out for central planning
written by Cranky post-mature dude, August 11, 2013 12:56
How else can one interpret the need to demand a "simple system" be placed on the diverse state and municipal entities. Sorry, Jeff, Bandera Texas ("cowboy capital of the world") is a completely different community from Austin Texas. And California is different from Texas and Washington state. And states do have rights to say "no" to this BS. Moreover, as JDM points out, Amazon has programmers that can handle it. The cell phone companies do, so, what, Amazon can't meet the challenge? More BS.
...
written by Bloix, August 11, 2013 1:27
"I for one welcome our new insect overlords!"
paying sales tax as an Internet seller
written by JoyfulA, August 11, 2013 1:33
As a very small hobby seller, I voluntarily pay out-of-pocket state sales taxes to my own state. I will not pay other sales taxes because it's impossible. Many states also have local sales taxes, and those local boundaries do not map postal ZIP codes. Most sales taxes tax some things and not others, idiosyncratically (restaurant food vs grocery store food, underwear vs prom gowns), and knowing what's taxable confuses many bricks-and-mortar stores. And some aspect of some locality's sales tax changes weekly. And then think of all the tiny remittances I'd have to send to all those government units quarterly!

When there's some national basis that enables automatically charging every buyer with the applicable sales tax and funneling the money to the taxing authority, then I'll gladly participate. Until then, I'm with Bezos.
Bezos has more resources than you do
written by Dean, August 11, 2013 8:10
JoyfulA,

Amazon has a top notch programming division. If anyone really believes that they lack the ability to get 99.9 percent of their items taxed properly, then they should not buy from them. Their order fulfillment system is surely far more complex and if they can't get taxes right, then they'll never get your order right.
Bookseller versus Book store
written by Melissa, August 12, 2013 2:00
I haven't read the WaPo story, but I noticed in your description their myth said "bookseller" and your refutation discussed "book stores". Those are two different things. Many independent book sellers have moved online and many of them have become fairly successful within Amazon itself as third party sellers. As an acquisitions librarian who buys most of her library's books via Amazon, many from those third parties, I am acutely aware of the difference.
(Someone could also do an article about how Amazon is hurting the now-smaller companies known in the library world as "book jobbers" - companies like Midwest Library Service and Yankee Book Peddler (YBP) who are in the business of selling books specifically to libraries.

Write comment

(Only one link allowed per comment)

This content has been locked. You can no longer post any comments.

busy
 

CEPR.net
Support this blog, donate
Combined Federal Campaign #79613

About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

Archives