WASHINGTON – In fiscal year 2017, 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 been struggling.
The public face of the lobbying business, which included a separate tax proposal was FedEx's founder and CEO, Frederick Smith, who repeatedly took to the airwaves of 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 will see a renaissance of capital investment," he said on a radio show in August 201
Four months later, President Trump signed into law the $ 5 trillion tax cut that became his signature legislative achievement. FedEx reaped huge savings and brought the effective tax rate from 34 percent in fiscal year 2017 to less than zero in fiscal year 2018, which means that overall the government technically owed that money. But that did not increase investment in new equipment and other assets in the fiscal year that followed, as Mr. Smith said businesses as his will.
Nearly two years after the tax law was passed, the fall of companies like FedEx began to become apparent. A New York Times analysis of data compiled by Capital IQ shows no statistically meaningful relationship between the size of the tax relief companies and businesses received and the investments they made. If anything, the companies that received the largest tax cuts increased their capital investment by, on average, less than companies that received smaller cuts.
FedEx & # 39; s financial filings show that the law has so far saved it at least $ 1.6 billion. Its financial filings show that it owed no taxes in fiscal year 2018 in total . Company officials said FedEx paid $ 2 billion in total federal income taxes for the past 10 years.
In terms of capital investment, the company spent less in the 2018 financial year than had been forecast in December 2017, before the Tax Act passed. It spent even less in 2019. Much of the savings has gone to reward shareholders: FedEx spent more than $ 2 billion on share repurchases and dividend increases in the 2019 fiscal year, up from $ 1.6 billion in 2018, and more than twice the amount the company spent on repurchases and dividends in fiscal year 2017.
A spokesman said it was unfair to judge the effect of tax cuts on investments by looking at year-on-year changes in the company's investment plans.
"FedEx invested billions in capital items that were eligible for accelerated depreciation and made major 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 expand G.D.P., create jobs and increase wages."
FedEx & # 39; s use of tax savings is representative of corporate America. Companies have already saved upwards of $ 100 billion more on tax than analysts predicted when the law was passed. Companies that make up the S&P 500 index had an average effective tax rate of 18.1 percent in 2018, down from 25.9 percent in 2016, according to an analysis of securities registration. More than 200 of these companies saw their effective tax rates drop by 10 points or more. Nearly three dozen, including FedEx, saw their tax rates drop to zero or reported that the IRS owed them money.
From the first quarter of 2018, when the Act came into force, companies have spent n early three times as much on additional dividends and share repurchases increasing the company's share price and market value than on increased investments.
The law cut the enterprise rate to 21 percent from 35 percent, and allowed companies to deduct the total cost of investing in new equipment in the year they undertook them. These cuts stimulated the US economy in 2018, helping to push economic growth to 2.5 percent for the year and boost in hiring . Business investment rose by 8.8 per cent in the first quarter of 2018, and was almost as strong in the second quarter.
But the impact quickly subsided.
In the summer, the economy grew by just 1.9 percent and business investment fell 3 percent, including a 15.3 percent fall in factories and offices. During the spring, companies spent less on new investments, after adjusting for inflation, than they did in winter.
Total business in investing in Mr. Trump's tenure has now grown more slowly since the tax cuts were passed than before.
Some conservative economists and business leaders say the effects of the tax cuts were underscored by the uncertainty of Trump's trade war, which is slowing global growth and causing businesses to freeze projects. Other economists say confusion is predictable because high tax rates did not hold back the investment.
"It gave a short-term boost, but it was not the big response that many expected," said Aparna Mathur an economist at the conservative American Enterprise Institute, who recently concluded that the 2017 law has not changed investment patterns in America in a meaningful way.
Mr. Smith, 75, a former Marine who built FedEx from a small parcel delivery service to a global logistics giant, was no stranger to pushing for lower taxes. He tried, unsuccessfully, to have President Barack Obama reduce the corporate rate. But with Trump's ascent, the company boss started a one-man campaign to convince Washington that now was the moment. He met the president-elect at Trump Tower on November 17, just days after the election, and appeared with the president at official events.
In a conference call with analysts the month after Trump's election, Alan Graf FedEx chief financial officer called the prospect of a 20 percent corporate tax rate "a mighty fine Christmas gift."
Mr. Smith teamed up with his competitor, David Abney UPS chairman and CEO, to push for a tax evaluation, including jointly writing a update in The Wall Street Journal.
"Fred and I even had some meetings about this with key people, and we both pushed pretty hard," Abney said in a recent interview.
FedEx spent $ 10 million on lobbying in 2017, in line with past spending, with much of it focused on tax issues, according to federal records. The team pushed hard to shape the bill behind the scenes, and met regularly with House and Senate committee staff who wrote the regulations.
Mr. Smith met Trump and Vice President Mike Pence in February 2017, and on May 26, he spoke on the phone with Secretary of Finance Steven Mnuchin, according to Mr. Mnuchin's public calendar.
Eight months after Congress passed the law, Mr. Trump celebrated the tax cuts by hosting Mr. Smith and other business leaders at a dinner at his Bedminster, N.J., golf club. He exhibited Mr. Smith several times and connected with him on a semester paper that Mr. Smith had written while a student at Yale. The newspaper formed the basis for the creation of FedEx.
The following week, Mr. Smith boasted of the company's influence on the law in the company's annual report, which noted that FedEx "invests more than $ 4.2 billion in our people and our network as a result of the Tax Act."
FedEx increased the size of the workforce by around 4 percent in fiscal year 2018 and around 7 percent in fiscal year 2019 .
The company also accelerated previously planned wage increases for hourly workers by six months. to other executives, and said it would invest $ 1.5 billion over seven years in Indianapolis shipping, and it also bought 24 Boeing freight jets for $ 6.6 billion, according to a procurement officer would not have done without tax cuts.  But the company ended its fiscal year 2018 by spending $ 240 million less on capital investment than it predicted it would do in December 2017, shortly before The company's capital expenditures fell by nearly $ 175 million in fiscal year 2019.
This year, the company cut employee bonuses and offered buyouts in an effort to reduce labor in the face of slowing global growth. The company has also added to the pension fund, a feature that has borne the benefit of reducing the tax liability even more.
FedEx partially reduced its tax liability by taking advantage of a provision of the law that allowed companies to immediately deduct the value of any capital investment they make in a given year. But the biggest gains were from cuts in corporate rates. FedEx had a large amount of future tax liabilities in the balance sheet – and as corporate interest rates fell to 21 percent, those liabilities also fell .
"Something like $ 1.5 billion in future taxes they had promised to pay just disappeared," said Matthew Gardner an analyst at the Liberal Institute of Taxation and Economic Policy in Washington . "The obvious question is whether you can draw any line, any connection between the tax cuts they get, apparently designed to encourage capital expenditure, and what they actually do. And that's just impossible to know."