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Alphabet Q1 2018 Earnings [pdf] (abc.xyz)
159 points by haberdasher 11 months ago | hide | past | web | favorite | 151 comments

My notes....


- Alphabet 1Q EPS $13.33, Est. $9.300

- free cash flow for the first quarter of $4.34 billion.

- 1Q Google Other Rev. $4.35B

- 1Q Rev. Ex-TAC $24.9B, Est. $24.3B

- Capital expense for Google more than triples: up from $2.4 billion to $7.7 billion year-on-year. That probably reflects spending on hardware, including the Nest division.

- Porat says that CapEx was "almost completely split" between paying for machines ("compute capacity") and paying for real estate.

- Without Nest, the "Other Bets" operating loss narrowed to $571 million from $703 million a year earlier.

- The company has discussed making annual stock grants to executives and other employees in the first quarter, and it's not clear yet how much that dragged down Alphabet's operating profit.


- 1Q Paid Clicks +55%

- Our first new glimpse at Google's network business: impressions on Networks sites stayed flat for the quarter, but the cost-per-impression went up 18 percent. Translation: Google is getting steady growth out of its display business.


- added nearly 5,000 employees in the quarter, to 85,050 as of March 31. That works out to more than 50 new hires a day in a 90-day quarter.

- Porat also says the company has been working on the GDPR compliance for 18 months. "We've changed our policy as needed. We are also providing users with strong user controls and privacy settings and privacy check ups," she told Bloomberg Television.

- Porat says Waymo has achieved 5 million miles of driving on city streets.

>Capital expense for Google more than triples: up from $2.4 billion to $7.7 billion year-on-year

Part of that also comes from Google buying up $1 billion of north Sunnyvale properties over the past year [0]. They bought roughly 50 properties. The article [0] has a nice map that shows since July 2017 Google has bought up roughly half of the Sunnyvale Moffet Park area.

I am mildly surprised how little coverage Google's buying spree has received.

[0] https://www.mercurynews.com/2017/12/22/google-expansion-ques...

> Capital expense for Google more than triples: up from $2.4 billion to $7.7 billion year-on-year. That probably reflects spending on hardware, including the Nest division.

$2.4 billion of that $7.7b is from their Chelsea Market purchase.

> - Porat says Waymo has achieved 5 million miles of driving on city streets.

Is that and the other Porat comments from the earnings call? The PDF doesn't seem to mention that.

yes, and other sources like the bloomberg terminal

"- 1Q Paid Clicks +55%"

Curious what makes that possible. I thought that most monitizable queries already had 100% of the above the fold content as ads.

At some point, Google is no longer a search engine, but rather, a targeted ad engine with some organic search if you bother to click to page 2.

Starting to feel like the old yellow pages in it's waning days.

Edit: Honestly curious. How do you keep outpacing general internet growth when you've already over optimized click growth. It's an honest question, not snark. I'm curious where the magic lies. I'm honestly surprised there's still magic after a couple of decades of squeeze. There's only so much blood in the turnip. Downvotes don't bother me, if there is some explanation. I'm here to learn.

Google may have optimised ad impressions, but they are far from optimising ad clicks:

1. Last year I saw ads for cat food even though I don't have a cat and Google has access to my photo stream.

2. I searched for information on the new Pixel 2 phone, but Google continued to show me ads for it after I had bought it and was using it at the time.

3. I saw an ad for Android Pay, so I tried to sign up. But then Google told me my bank doesn't support Android pay. Fair enough, but why do they continue to advertise Android Pay to me?

4. On Apple's website I configured a new MacBook Pro and placed it in my shopping cart, but then had second thoughts and I didn't actually buy it for 6 months. In that time I didn't see a single Google ad for a MacBook Pro.

On top of that, I don't think Google has actually optimised ad impressions. When I read a Forbes article I see ads like, "You won't believe what these celebrities look like now". When I read The Economist I see ads for milk processing plant equipment. With all the personal information Google has about me, why aren't these publications using AdSense?

Their efficiency is impressive.

On an annualized basis, they are doing ~$120B.

They have ~85k employees.

That means they are generating ~1.5M Revenue Per Employee.

That's crazy

If anyone is curious about what companies in the S&P 500 rank higher in the revenue per employee metric: https://craft.co/reports/s-p-500-revenue-per-employee-perspe...

That kinda revenue with those profit margins are the insane thing. I’m less impressed at revenue per employee generated from oil.

Operating margin is 22%, not bad (better than many, probably most, of the companies on that list) but not insane. Apple is better on both metrics.

Not a far comparison considering the size of some of the companies.

Definetely needs to be weighted.

An example, Murphy Oil Corporation has 1,294 employees...

Also another interesting trend is how many healthcare companies are in that list.

Healthcare is just under 20% of US GDP and 20% of the companies are in healthcare

AmerisourceBergen is a drug distributor / wholesaler, so they have huge revenues bc they sell expensive drugs, but they don't capture much of that (their net income is negative)

Express scripts is a PBM and highly profitable. I don't really know what PBMs do at a useful level of detail, but their profitability has been a subject of debate as pharma companies blame them for high prices. They basically aggregate demand for drugs and negotiate prices on behalf of payers, and make money on their ability to do so

Gilead had one of the best selling drugs of all time, that did $5B in revenue in the first quarter of launch, and $20B+ in the first year I think. Since then rev has declined but still massive

The insurance companies get lots of rev from premiums but margins are low

Biogen and celgene also have one or two drugs that do $5-10B / year

Should note that drugs only account for 10% of health spend. The biggest driver of healthcare costs -- hospital care (30%) and physician services (20%) don't show up in this chart bc they are fragmented industries and also human-capital intensive

> drugs only account for 10% ... hospital care (30%) and physician services (20%)

Were you in a class with Professor Long at Tulane? He has a great, great slide illustrating these and many other facts about the US healthcare economy over the last century.

I was not but would be interested in seeing the slides. Are they publicly available?

Hi, thanks for the link! we're building out more analyses like this, would you be up for a brief chat to share some feedback? thanks, ilya [at] craft.co (founder/ceo)

Any ideas why energy companies have highter RPE than tech? Perhaps they have a larger rate of subcontracting?

The bulk of their cost is capital, not labour.

Do we have a Profits per employee rank for S&P500?

Usually companies grow at a slower rate as they get larger.

Alphabet's growth rate is actually accelerating.

And they're not acquiring this growth, they're generating it organically.

Truly astounding.

It's been said that they created the first self-replicating talent machine. Having worked with them, I believe it.

Could you elaborate on self-replicating talent machine (or link to posts if available)? Does that mean their talent attracts other talent from outside or their culture and process help develop (already talented) people working there into greater heights, or something else?

It sounds really interesting and might benefit others as well.

Laszlo Bock, Google's former head of HR, covered this idea in his book "Work Rules" [1]. It's a good read.

(disclaimer: I work at Google, although I read the book before I joined. I remember initially thinking the book was just corporate PR, but later I had the opportunity to see firsthand how accurate it was)

[1] https://smile.amazon.com/Work-Rules-Insights-Inside-Transfor...

The self-replicating hubris machine seems to be functioning as well.

It also means that their employees aren't being paid as well as they should be. It also means that they are enjoying a monopolistic position.

Usually, when a business is as lucrative as google's, competition arrives. But it seems like tech doesn't work that way.

For example, if a chicken restaurant is making $1.5 million in revenue per employee, then you'd see tons of chicken restaurants pop up to compete. Even the employees, seeing such extraordinary revenue, would quit and open up shop. But for a variety of reasons, tech doesn't seem to work that way.

Is it lack of capital? Lack of opportunities? Lack of tech-oriented people? Lack of entrepreneurs?

> That's crazy

It's ridiculous. It's amazing how profitable large tech companies are. What's even more puzzling is why there aren't more googles/facebooks/etc, especially in other countries like france, germany, britain, etc.

Google has billions of users and has thrown out everything that doesn't scale, like support or customer service. A lot of support and content moderation is done by volunteers (there's a certain hilarity to the way the world's most valuable corporation recruits unpaid labor as if it's some sort of charity) in Google Local Guides or Google Help Center type stuff.

Also, the "cost per employee" can look artificially higher because they contract out so many of the support positions they do have. I think "employees" mostly constitute management, marketing, and engineers?

Who is counted in the 85k number? Are low-wage positions (like janitorial services) considered employees, or are they employed through subcontractors?

Google counts them differently. When I worked there a few years ago, it was 65k FTE, and 65k TVCs (Temps, Vendors, Contractors). TVCs included the shuttle drivers, janitorial staff, etc. but also included some part time / temp "typical FTE roles" like UX researchers.

My guess is that this 85k is just FTE


That just means their lower margin work is performed by vendors and contractors.

Yes if you don't have any support staff it is easier to reach such numbers.

This is on purpose. If the number of support people is a linear function of the number of users, the business cannot grow past half the worlds population.

Yes I understand it is on purpose, but it is not a useful metric to use when measuring a company.

Many other companies that have more customers than Alphabet manage to have support staff. While I doubt Alphabet cares, I won't use one of their paid services until I can get support.

Seems like a good time for employees to unionize.

Because recenue per employee is dropping?

Ah didn’t realize it was dropping. However, it’s clear there’s a large discrepancy between average employee income and average revenue per employee.

Because perks and satisfaction are on the rapid decline. And salary too. Last year new employees were told that a new policy enacted after they joined would make then ineligible for stock refreshers their first year.

My bet is that Google is poised to become a strong market protagonist in the Public Cloud / Infrastructure space, within the next few years.

I have admired the stability and the maturity of their technology platform since my AWS days.

I have had nothing but good experiences in using Google Cloud. The only issues I've had is in other tools/libraries being specifically targeted at AWS and not working with other tools. Seems like the kind of thing that fixes itself as GC gets bigger / more used.

It'll be interesting to see how things play out. In the enterprise space the only two I hear companies talk about it Azure & AWS...

Double EPS (non-GAAP) from $7.73 to $13.33...

On the downside, effective tax rate is down to 11%. That's concerning because the EU is very unhappy about the whole "double Irish with a Dutch sandwich."

Most of the change is due to a one time change in accounting policy, operating income was up but "only" by $500m, whereas the impact of the change in accounting was over $3b

What does EU care about how much Google pays in US tax?

That’s the global tax.

double EPS. I love how normal this has become that people aren't even that shocked anymore when numbers like these get released. republican taxes lmao

EPS was inflated due to new accounting practices. Actual is around $9.93 or therabouts – I believe it was inflated due to $GOOG finally disclosing their myriad investments, with the leader being Uber.

How does a company like Alphabet have so much space to grow at this point?

Keep expanding into more and more markets. Google has had over 90% of the search market for almost 10 years. Android barely existed 10 years ago.

Programmatic is a big part of it (read: Youtube). It means that the ads business on Youtube has made massive strides in the past year.

That's not the only thing, but it's a big part of it.

They didn't grow. They got a tax cut.

Their revenue grew 26% yoy. That has nothing to do with tax cuts. Stop letting your confirmation bias cloud your judgment.

26% revenue increase YoY

What? Google grew over 25%. Which is just accelerating as numbers get bigger.

Strong quarter again for Google. Pretty amazing to grow faster as the numbers get bigger.

Wow you're either a Google employee or huge fanboy. Every single one of your comments is pro-google/anti-apple.

I thought you were kidding but 3 pages in and not a single one outside those 2 topics.

I thought you were exaggerating but this guy is the closest thing to what people call "shill" that I have ever seen on HN.

And people like ocdtrekkie are virulently anti-google, but I guess you don’t have a problem with that.

eps doubles and shares are down...

EPS doubles (actually grows 72%) due to some one-time adjustments.

Revenue is up 26% year-over-year. Operating income is up 6.6% year-over-year.

The stock is up ~25% over the last 12 months, by the way.

Profit margin is down, 27 to 22.

>Effective tax rate 11%

Absolutely obscene. Literally their entire Net Income increase from $5.4b to $9.4b is due to a tax cut from 20%. We will be paying for this Republican tax policy for the rest of our lives.

Maybe check Amazon's tax rate before "this Republican tax policy" went into effect prior to blaming low corporate tax rates on one party.

If you think lobbyist-driven tax policy in America is ONLY done by Republicans, you should probably expand your reading beyond CNN / WashPo. You're right that the federal government that creates the tax policy is for sale, but it's not just the Republicans.

OP might be exaggerating, but they are not talking about who lobbies, they are talking about the politicians who pass the bills and implement the tax cuts. In that they are right. In the house, 191 democrats voted against the tax overhaul, 0 voted for it. 227 republicans voted for it, 12 against it [0]. The senate was much the same [1].

You can say what you want, but this is a republican tax bill no matter who it benefits. It was supposed to benefit the rich, and thats what it does (I'm sure if it was possible to isolate by party they would have done so). It won't discriminate in who it hurts in the long run either (the middle class and the poor, like usual). The wealthy are going to take 90% of whatever economic gains result, they won't end up in schools or in communities, again like usual. Unemployment is already low and cant go much lower without even more illegal immigrants and wages will probably continue on their current trajectory and we'll be arguing for the next decade about who is to blame. My guess is some hidden variable will be scapegoated to explain why it didn't work.

[0] https://www.nytimes.com/interactive/2017/12/19/us/politics/t... [1] https://www.nytimes.com/interactive/2017/12/19/us/politics/t...

> I'm sure if it was possible to isolate by party they would have done so

It actually does seem to do that fairly effectively from my understanding, by restricting the deductions those in high tax states (ie Democrat) can claim.

Correct, the bill benefited lower-tax (that is, Republican-controlled) states very disproportionately.

Good points, I forgot about that.

Benefits the rich? You mean it benefits everyone. I'm not rich and my taxes went down.

I should have said benefits the rich disproportionately. They are throwing most of us a bone (sometimes even a half-decent bone) while treating themselves to a 11 course meal. I don't think that this is a controversial statement, its just how it is going to be. They know that a few thousand dollars in the pockets of average Americans is a huge deal, even if it results in millions in the pockets of others.

The question is, in the long run, does that couple grand benefit us more than it costs us in terms of long term deficits, reductions in government services, etc?

The "hell yeah I'll take more money anyday!" mentality is what they depend on to sell the bill and it works.

The rich pay the most tax, so any cut would benefit them more no?

It is more complicated than that, but even on a basic level it is not proportional [0]. If you consider the purpose of a progressive tax system it gets even murkier.

[0] https://www.npr.org/2017/11/14/562884070/charts-heres-how-go...

The liberal media narrative for every tax cut ever is that it only benefits the rich. Forget that your paycheck and mine saw taxes go down, it was only for the rich according to the media.

Got any sources on that? I expect you'll see a lot of them say it benefits the rich more, but saying it only benefits the rich? Not that I've seen, not legitimate sources (I know its hard to tell the difference between a left-wing blog and a multi-Pulitzer winning newspaper over 100 years old).

I should have said it disproportionately benefits the rich and in the long run I think it probably does only benefit the rich because the middle class and the poor will be hurt by the cuts necessary to pay for the thing and the resulting deficits.

Here are examples of the "liberal media" saying its disproportionate, not that it only benefits the rich. I hate to break it to you, but most of the "liberal media" is pretty nuanced, it may not say what you want but you don't see nearly as much "always/never" as you would expect.

[1] https://www.npr.org/2017/11/14/562884070/charts-heres-how-go...

[2] https://www.pbs.org/newshour/politics/how-the-senate-tax-bil...

It's not just corporate rates. Doubling the standard deduction is the most reckless thing that has ever been done to our federal tax code for individuals. The fact that I am going to pay an effective 15% this year on a $100k salary is absolutely insane.

Doubled the standard deduction but eliminated exemptions but doubled the child tax credit (with much higher phase-out).

But didn't make the child tax credit fully refundable which hurts middle class families. I on the other hand am going to make out like a bandit with an approximate $6k tax cut, but I don't really need it. I'm going to dump it into the market and forget about it for 20 years.

Ish, this really benefits renters and penalizes property owners.

Not property owners, people with a mortgage.

People with a mortgage in expensive markets California, Massachusetts, New York...

With the new tax reform the top 20% of income earners will still pay more than 87% of income taxes.


Yeah, not nearly enough for that top few percentage points.


Could be lying, or maybe they contribute 12% to their 401k, or pay for daycare with pretax dollars, or have an HSA and an IRA, etc. There's lots of causes for taxable income ≠ salary- there's no need to make baseless accusations

daycare max is only $5000

Yeah. Although when I looked at the math[1] it's a moot point since if you make $100k/year you're only paying 15% _without_ any of those mitigations.

[1] https://www.forbes.com/sites/kellyphillipserb/2018/03/07/new...

>You are lying.

No, I'm not. Do the calculations yourself.


I get that it's hard to believe at first how insane this new bill is. I was in absolute disbelief when I first did the numbers.

A single person earning $100,000, claiming the standard deduction, will have a total federal tax liability of $15,410 for 2018, or an effective rate of 15.4%.

So send a check to the Treasury. Nobody is stopping you. You could even organize a bunch of like minded people to send checks to the Treasury.

I needed the tax cut. If you don’t, you don’t have to keep it. I am a better steward of my money than the government, especially when it comes to saving and investing for my family’s future.

If you needed the tax cut, you likely didn't get much of a tax cut.

How can you expect him to afford to keep his ferraris going without the tax cut? Heartless.

> I am a better steward of my money than the government,

Really, ok what have you done with your money? How many buses do you run? How many schools, roads, armies?

This argument is so lazy and seems to crop up every time income tax is discussed. It's perfectly fair to criticize tax policy while also acknowledging that you (and others like you) are paying a lot less than what you should be paying.

Why would that person necessarily acknowledge that? I suspect they don't agree with you.

It's not as if there is an objectively correct amount of taxation, the matter is up for debate. To the founders of the country, for example, the federal tax rate in the US as it is today would constitute an obscene violation of their expectations.

Only if you instantly revived them and never provided them with the details of why we have an income tax. They would also be shocked by the lack of tariffs and other taxes.

"In 1794, when Congress appropriated $15,000 for relief of French refugees who fled from insurrection in San Domingo to Baltimore and Philadelphia. James Madison wrote disapprovingly, 'I cannot undertake to lay my finger on that article of the Constitution which granted a right to Congress of expending, on objects of benevolence, the money of their constituents.'"

Unless you're taxing them federally for provisions outlined in the constitution, I'm inclined to disagree that they wouldn't have a problem with it.

Maybe you did, maybe you're just a greedy asshole who doesn't want to pay for society. Who knows.

I certainly didn't need a tax cut. You say you needed a cut, so maybe you did and maybe we should cut your taxes, leave mine alone, and tax raise taxes on people making a lot more.

>Literally their entire Net Income increase from $5.4b to $9.4b is due to a tax cut from 20%

Hyperbole. Revenue is up $6.4B YoY from $24.75B to $31.1B.

Corporate tax raises relatively little revenue, and most Western European countries don’t rely on it much because its easier to tax individuals.

If we don’t want to be getting more in debt we should raise taxes on middle class people to the level of say Germany. In a state like California, our taxes on rich people and corporations are already about as high as in Germany, its our taxes on people making sub-200k that really dramatically lower. That’s where most of the income is—in the 50-99% range.

That may be true (I haven't checked), but my guess is that germany (and most other western nations) offer a lot more government services for that level of tax. Taxing the middle class here the same as say, norway doesn't make sense unless you offer the same services. My half-decent insurance plan is one of my biggest monthly expenses and I'm lucky that it doesn't impact me too much. Many other "middle-class" people are barely getting by as it is.

> Taxing the middle class here the same as say, norway doesn't make sense unless you offer the same services.

My point is that the bellyaching in America is targeted at the wrong thing. It's not about how much taxes rich people or corporations pay. That's not why Germany has free education and we don't. It's that a household making $100k pays 20% taxes here and 40% in Germany. That's the major difference between the countries.

Exactly. Lots of talk of taxing the rich, but if you look at other countries, the "rich" are clearly middle class. No other way to raise enough revenue.

You understate how shocking the situation is:

"The U.S. spends more public money on healthcare per capita than Canada, Sweden, Denmark, Germany, Switzerland, France, Japan, Australia, New Zealand, and the United Kingdom. In fact, each year the U.S. government spends $4,197 per person, while the OECD median spend is $3,677."


> If we don’t want to be getting more in debt we should raise taxes on middle class people

Or... cut spending.

Sure, start by taking a machete to military funding.

It's astounding that as screwed up as the budget & debt picture is, it could still be fixed if everyone were willing to be even modestly rational about our situation. The fiscal house has been on fire for a decade and most of DC wants to pretend otherwise (particularly when their favored party is in power).

- Lock spending growth for ten years at a maximum 1% per year, no matter what.

- Cut $250 billion off the military. Make the human force smaller. Trim or end various very expensive, unnecessary weapons systems. Close & consolidate a lot of bases. Aim for ~2.3% of GDP for military spending.

- Reverse the recent personal tax cuts. Raise income taxes on the top 1/3, staggered toward the top 10%. Try to get $150-$200 billion here.

- Bring Social Security costs down by $50b. Add some means testing for people that really don't need it.

- Squeeze costs out of healthcare by using Medicare/Medicaid/CHIP/VA as a club, across the board targeting of all costs in the industry. The US Government spends over $1 trillion on healthcare, find at least $100b in savings.

- Go to work on the national debt by gently abusing the position the dollar has as the global reserve currency. Have the Fed start a ten year QE program buying $500b per year back in debt and retiring it.

- Federal legalization of marijuana (another tax point for states, perhaps reducing some federal revenue dependency that could be redirected back to the federal budget); it'd also reduce the vast, expensive government prison, policing & enforcement costs. We're heading this direction now, let's just move faster.

- Meaningfully increase gasoline taxes, eg $0.20 per gallon, to fund & offset infrastructure costs. Also consider a new infrastructure tax on expensive consumer vehicles, meant to amplify the contribution by higher income persons to the infrastructure funding increase (since the gas tax hits the bottom 2/3 far harder).

That combination would produce a budget surplus within maybe five years. The surplus after a decade of spending growth locked at 1%, would be immense. We'd be down to $12 trillion in public debt within a decade, with a $26-$28 trillion economy, making the public debt easily managed. The Fed's QE debt retirement could end there. And all it would take is ten years of shared, modest pain and discipline.

> And all it would take is ten years of shared, modest pain and discipline.

Modest for who?

Social Security: There are an absolutely insane number of people who didn't plan for self-sufficient retirement because they planned on social security checks. They shouldn't need it, but they do. Those people are a far larger problem and constitute the bulk of avoidable liability. The problem with SS is people who need it but shouldn't have, not the people who actually don't need it.

Military: Here's a truth that doesn't win elections: blind patriotism is the only palatable way to sell any absolutely enormous jobs program to the US public. A lot of these folks don't have the education or skills required to operate in a private sector unbuoyed by gov't spending. And to the extent that they do, they'd be entering newly saturated job markets with low barriers to entry.

Gas taxes: Carnage for the lots of folks who can't afford to true cost of driving but already sunk 30+% of their annual gross into a car as a 10+ year investment.

The policies you're suggesting -- at least, most of them -- would leave an enormous amount of human suffering in their wake.

Still justifiable policies / good ideas? Well, that's another discussion. But let's be realistic about the impacts.

It raises very little money due to how many loop holes are deliberately left in our tax code.

Adding a tax to the middle class without a corresponding raise in income will result in economic downturn, especially since we are increasing interest rates on an already debt-burdened middle class.

It's not a "loop hole" if its a purposeful design. Countries make the deliberate decision to tax individuals instead of corporations because its easier (and related decisions like taxing capital gains at lower rates). Even countries like Sweden focus taxation on the middle class, with lower corporate taxes and a much less progressive tax structure than the U.S., because it's easier. It's a deliberate fiscal policy.

Oh so its "purposeful" that corporations in the US move their money through 3 different nations to avoid paying taxes?

All 3 nations got together and decided that was the best way to go about it?

That makes sense.

Also the effective corporate tax rate in Sweden is almost double that of the rate Google paid. Claiming that Western European countries pay less in taxes is naive, as their corporations have far fewer loop holes to lower their tax rate.

Maybe if American corporations actually paid the rate they are supposed to we would have a high tax rate, but very few large corporations do.

Now you're changing the subject. Is your point that loop holes exist (which I don't dispute), or that loop holes are the reason why corporate taxes don't raise much money (which is wrong)? Those are two different points.

Google's 11% tax rate probably is the result of loop holes. But most companies don't deal in bits and IP that can be moved around to take advantage of international arbitrage. Walmart pays 29% taxes.

The result is that even accounting for Googles, our effective tax rate is high compared to European countries: https://www.npr.org/2017/08/07/541797699/fact-check-does-the... (see the second chart). 18.6% versus 11.2% for France.

"Republican tax policy" will bring that down somewhat. But corporate income taxes only bring in 9% of revenue. Even if you doubled them they'd be only 18% of revenue. But your effective tax rate would be more than triple that of France.

"In a state like California, our taxes on rich people and corporations are already about as high as in Germany, its our taxes on people making sub-200k that really dramatically lower. That’s where most of the income is—in the 50-99% range."

It is truly astounding how few people realize this...

The US corporate tax rate is now more in line with the OECD average: https://taxfoundation.org/us-corporate-income-tax-more-compe...

True but statutory tax rate matters less than effective tax rate.

As a proportion of GDP the US was already lower than average.


I don't know enough to argue for one side or the other, but I think the provided link could be misleading (not necessarily intentionally)

Yet the US lingers at the bottom of the OECD in terms of key criteria like healthcare, education, poverty, mobility. [1]

The bulk of OECD have far stronger social indicators and spends. Perhaps a tax cut before achieving higher ranks on key criteria is misplaced.

[1] http://www.sgi-network.org/docs/studies/SGI11_Social_Justice...

Yet the US lingers at the bottom of the OECD in terms of key criteria like healthcare, education, poverty, mobility.

In fact, it's so bad that there is a multiyear waitlist to immigrate!

I skimmed it and didn't see it compare effective tax rates. This article is very useful analysis but it misses a large part of the context once you start talking about actual amounts paid in taxes

But with just as many loopholes and ways to get around being taxed. Not sure what the tax rate even means if no one pays it anyways.

Fixing our corrupt system is the real solution.

US tax system has very few loopholes. Double Irish / Dutch sandwich avoid EU taxes, not US. US tax on foreign income can be deferred - indefinitely - as it is only paid when the money is repatriated. But to truly avoid US corp tax is generally pretty limited (leasing IP from a foreign company etc).

For example: If US company X makes $100B in foreign income in 2017 and repatriates that income in 2019, they will book 0% tax paid in 2017.

Similarly, if X pays income tax to a foreign government they will receive credits for tax already paid - but due to accounting practices the US government will not count the credits when publishing the effective tax rate of X. That last point isn't germane to this particular article but it is something behind many of the 'Look at the low tax rate of X' articles you will see around.

Note that many US states have their own corporate income tax levies as well. California charges about 10% I believe.

Thus a corporation domiciled in California is still paying a corp tax rate about as high as any in the world.

I don’t get the whole issue with low coporate taxes. I get why people should be taxed so as to reduce consumption and increase production, but a coporation is not a person, so why hinder their ability to further productivity and economic output? It’s redirecting money earned that could be used to further economic activity and redirecting it to the hands of some highly corruptable bureaucrat in public office given the responsibility to handle way more money than their pay-grade should allow. I understand if the government is hurting for money, they may have to reach into coporations, but fundamentally corporations should not be the primary source of government income (or else government would be even more beholden to coporations instead of citizens). Maybe I’m missing something here (and I’m totally willing to admit that), so if someone can enlighten me behind the rationale please do so.

Your concerns make sense for considering things like payroll taxes and taxing other operating expenses. But if we consider taxing corporate profits that go to shareholders, taxing here is a very relatively painless place to tax, as opposed to, say sales tax. This is doubly so when corporations are already sitting in hoards of cash and not investing, due to lack of opportunity or demand, interest rates are low, productivity gains are going towards the top, etc.

I'm not quite as cynical when it comes to bureaucrats (military contractors aside), because as we can see in some of the recent teachers strikes, it makes sense to tax oil/gas corporations who are making full use of states infrastructure to for the benefit of themselves (and workers etc). The tax rate is not really affecting how much they invest. [1]

I'm with you on corporate influence though. However, I think the answer there is to limit corporate influence of elections, say by disallowing funding of candidate specific ads and limiting the $ they can put towards issue lobbying.


> But if we consider taxing corporate profits that go to shareholders, taxing here is a very relatively painless place to tax, as opposed to, say sales tax.

Aren't stock dividends taxed when it hits the individual?

I can understand profit taxing to incentivize spending.

It simply doesn't work that way, maybe for a small business they reinvest all or most of their earnings (Amazon being the exception).

For someone like Apple or Google, they have made it very clear their policy is to hoard as much money as possible (and as much of it offshore as possible too). This is a main reason why a corporation SHOULD be taxed, you only get taxed on PROFIT as a corporation. If a company was truly increasing their "productivity" and "output" they would have much less profit quarter over quarter.

As far as the government being owned by corporations, that already happens because we allow them to directly fund politicians. With or without taxes.

I get your argument, but consider this.

Corporations generate activity that taxes support, such as the use of roads. That's really what it comes down to I think.

> or else government would be even more beholden to coporations instead of citizens

This is a real problem...perhaps one of the biggest problems we face, and I really don't have any reasonable ideas on how to fix it.

> Corporations generate activity that taxes support, such as the use of roads. That's really what it comes down to I think.

For roads specifically, if a corporation causes increased usage of roads from say, more employees, the employees already pay for it through their personal income taxes (off of salary). If it's a trucking company, then there are weigh stations that weigh these commercial users and charge them extra for road maintenance.

Regardless of the theoretical efficiency the US will be taking less in corporate taxes and we will have to wait and see if economic output increases enough to make up for it with other taxes.

Well for one thing, they aren't the primary source.

For another, reinvesting into the business lowers your tax burden.

Yes I agree the tax has a positive benefit of incentivizing re-investment (payroll, or other spending) to avoid paying taxes, BUT it seems like this has a high risk of causing companies to focus on short term re-investments.

Famously, companies with thin profit margins from constant reinvestment become less resilient to economic downturns and shifting industry trends, like defunct retailers like Circuit City. Having no saved up capital means companies like that are completely unable to properly reinvent themselves if market shifts happen relatively fast and they have no reserve capital.

I know it's politically unpopular, but most economists across the political spectrum believe that corporate taxes should be eliminated entirely.[0] It's more effective to tax people directly as the corporate tax is extremely volatile and it takes away money that could be productively reinvested.

[0] https://www.npr.org/sections/money/2012/07/18/156928675/epis...

Except the last tax holiday on corporations resulted in them reinvesting almost all of it into stock buy backs and dividends.

The myth that lowering taxes on corporations results in economic growth needs to die.


"A 2007 academic study by Roy Clemons, then a graduate student at Texas A&M University, that was based on earlier data, found that the tax break did not stimulate investment in the United States economy and that repatriated money was often used for disallowed purposes, like stock repurchases."


"While empirical evidence is clear that this provision resulted in a significant increase in repatriated earnings, empirical evidence is unable to show a corresponding increase in domestic investment or employment"

When you tax people directly, you recover money earned by people through corporate stock buy backs and dividends. Those are all taxable income.

Yes but the goal of the bill (and any time someone brings up reducing taxes on corporations really) was economic grow, which never happened.

Also capital gains tax is unfair to lower income individuals. We can invest money and afford to wait a year to see gains (and the obscenely cheap 15% tax rate). Most individuals cannot even invest, yet alone let their money sit for a year.

Or, rather than give corporations the option of reinvesting liquidity, we can incentivize reinvestment by taxing the crap out of corporations.

I don't understand how the "tax cuts grow reinvestment" argument sways people. Investments into the business are deductible as expenses, meaning doing the exact opposite of a tax cut will actually drive reinvestment far more effectively. Cutting taxes allows for stakeholders to withdraw profits with much less of an incentive to reinvest.

Want to drive up the velocity of capital? Cut personal taxes especially on lower bands since people in these bands are more likely to spend that money on essentials and personal luxuries to make life better. Increased spending -- be it at the corporate level on growth, hiring, and research, or at the personal level on necessities and occasional luxuries -- keeps the economic engine going.

While corporations have the legal obligation to collect and pay taxes, only real people can bear the economic burden of the tax. The people who pay the tax are principally shareholders and workers of the corporation. It is up for debate how this responsibility is distributed but there is a growing body of evidence that the proportion is skewed towards labor, since capital can move more freely than labor.[0] We should expect to see higher wages for labor in that case which is what you seem to be advocating for.

[0] http://www.taxpolicycenter.org/publications/capital-income-t...

How can it be true that their net income doubled because they went from keeping 80% of their profit to keeping 89%?

Your assumptions are wrong, or you have confusion based on wording. By definition, net profit is after taxes and expenses. By definition, one always keeps 100% of net profits. If by "profit" you meant "gross profit" (i.e. after cost of goods, but before other expenses and taxes), I think that would go a long ways to explaining your confusion. A small increase in your net profit margin usually causes a large increase in net income (net profit), because expenses are typically a very large percentage of revenue.

Am I confused? I realized afterwards that I should have said "of their income" rather than "of their profit", but I think my point still stands.

Corporate tax (at least in the US, and I assume in most other places) is calculated on income, i.e. revenue minus expenses. The original commenter was asserting that halving the company's tax rate, and nothing else, was responsible for a doubling of profits. My point was simply that it should be obvious that this is nonsense. Cutting the tax rate can't double the company's profit unless the company was already paying half of its income as tax.

It's irrelevant that expenses are a large fraction of revenue, because expenses are already excluded from taxation.

Other posters report that it's due to an accounting change.

If paying 11% is Absolutely obscene I would like to know what the adjective is for Amazon paying 0%.

This comment is factually wrong (as pointed out by other responses) and evinces sadly vile sentiments.

The US corporate tax rate had grown until 2017 to be much higher than it is in Western European countries (and remains relatively high). If you, like many anti-Republicans, think that Sweden is an interesting model -- please note that Swedish corporate taxes are much lower than in the US. [1]

As for the notion that profits, or their increase, are "obscene" -- this is the essence of the anti-capitalist mentality.

[1] https://taxfoundation.org/how-scandinavian-countries-pay-the...

Pick a more biased source.

Are you so irrational as to reject facts because you dislike who tells you about them?

Can someone without bias ELI5 on why I pay ~30% in taxes, but Alphabet pays 11%?

I'd start by revisiting the assumption that individual and corporate tax rates should be similar, or even comparable.

Why shouldn't they be similar? Seems reasonable that a "legal person" should be subject to similar taxes as a real person. And from a fairness standpoint, it doesn't seem fair that Google is taxed 11% on $billions of income after expenses while I get taxed 25% on $thousands of income sort-of-before expenses. Fairness is not always best for society, but it does seem like a reasonable default. In my mind, the default is that they should be similar, and any deviation from that requires a reason.

This isn't a very helpful comment. The parent presumably doesn't have the information to make a different assumption (or they would have already). Telling them to revisit their assumptions without giving them any additional resources to do so is unhelpful. Besides, the rest of us (me, at least) would like to know your reasons.

The money is taxed when it is transferred from Google to Google's shareholders. Taxing it a second time when it is transferred to Google from other corporations is widely seen by economists as an economic drag and something that drives offshoring.

You can't afford to lobby politicians. Alphabet can.

This is not correct. The real reason is capital is more mobile than individuals are. Most Americans won’t (or can’t) leave the country if their taxes go up, but businesses are constantly making decisions about where to invest and hire people. Under the old tax code, the US had the highest corporate income tax rate of any OECD country:


and also taxed corporations based on their worldwide income, which led to a number of high profile tax inversions.

How? Google’s money doesn’t belong to you or the government. Taxes shouldn’t be confiscatory. Is Google using more government services than a less profitable company or a similar size? Of course not. So why should they pay more? How about the millions in taxes paid by their employees? Or the millions in sales taxes paid by employees, or the millions in property taxes paid by employees? Or all of the businesses who sell products to employees? Or the capital gains realized by shareholders that are then used to invest in other businesses or buy products and services?

Even if Google paid 0%, they are a massive net economic gain for the country.

Remember, corporations don’t pay taxes, people do. If Google paid more, prices for their services would rise and that would then increase customer acquisition costs for businesses which would result in lower profits for the businesses which means they hire fewer people and thus lower wages and higher unemployment which results in even fewer taxes collected and then, before long, you have the economy of France. Google would then lose business and contract in size and then they would pay even less in taxes.

The Laffer Curve is a real thing.

"The Laffer Curve is a real thing." there are some assumptions about where on that curve we are.

The balance sheets of most of these companies were at record levels before the tax cuts, and most of the tax benefits will go into share buy backs, which will not do that much to stimulate the weakest parts of this economy.

The Laffer Curve makes a number of assumptions without evidence, most notably that tax revenue as function of tax rate is memoryless, when it obviously isn't.

This is ignoring the issue, even when accepting the Laffer curve as true, that the revenue maximising rate would surely be well above what would be morally acceptable to enforce (~75%)

> The Laffer Curve is a real thing.

Parody account?

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