FedEx Delivers Billions to the Taxman
The First Amendment to the U.S. Constitution makes clear “the right of the people . . . to petition the government for a redress of grievances,” and the FedEx board of directors and senior management takes this very seriously. As a corporate citizen, we decided many years ago to engage openly in four areas of public policy that have strategic implications for our company and the more than half a million people who work for us: energy, the environment, trade and taxes.<p>Although FedEx is an American company focused mostly on governmental issues in the U.S., we serve 220 countries and territories around the world, and appropriately make our views known on these topics internationally as well. We would never advocate policies that we did not feel benefit society overall.<p>During the Obama administration, and more recently the Trump administration, we worked consistently to change U.S. corporate tax policies. As one country after another lowered corporate tax rates, the U.S. stood by and allowed wide swaths of this country to be deindustrialized due in large measure to its globally uncompetitive business tax rates. At the same time, the country lost focus on vital trade policies following the financial crisis of 2008-09.<p>The primary victims of this governmental disregard were blue-collar, high-school-educated wage earners, particularly outside metropolitan areas. President Obama belatedly came to embrace the need for a change in both policy areas and supported lower corporate tax rates, increased infrastructure spending, and new trade agreements such as the Trans-Pacific Partnership and the Transatlantic Trade and Investment Partnership. I met with Mr. Obama several times on these issues, and I hope our views were in part responsible for his positions during his second term.<p>When President Trump took over along with a Republican Congress, we worked very hard through various open communication channels, coalitions, and meetings with members of Congress and the administration to effect passage of the Tax Cuts and Jobs Act.<p>While I met with Mr. Trump on a couple of occasions, I never discussed tax reform with him, although we did talk about other public-policy matters. We at FedEx were very pleased when he signed the Tax Cuts and Jobs Act into law on Dec. 22, 2017. In response, we increased capital expenditures. We placed a major order for 24 Boeing wide-body freighters, funded major facilities modernizations and expansions, put additional funds in our pension plan, and increased wages by more than $200 million.<p>Had the tax cuts not passed, we would have significantly lowered capital expenditures in 2018. Instead, the expensing provision of the legislation encouraged FedEx to buy new 777F and 767F aircraft. During the debate on tax reform, the chief executive of UPS, David Abney, and I jointly penned an op-ed in these pages urging passage of corporate tax reform.<p>I know the FedEx aircraft orders created thousands of incremental new jobs for Boeing, General Electric (the engine supplier on freighters), and a multitude of smaller suppliers. In fact, each order of a 777F injects about $540 million into the U.S. economy, supports 1,850 jobs, and generates roughly $45 million in federal, state and local taxes.<p>While major capital expenditures under the tax-cut legislation can be expensed, thereby initially deferring U.S. corporate tax receipts, these assets should produce significant revenues for the U.S. Treasury in the years to come while also providing great jobs for the thousands of people who will operate, maintain and provision FedEx and UPS aircraft.<p>There is little doubt the significant increase in U.S. employment and wages since the tax cuts were passed is due to the decrease of corporate tax rates from 35% (which we used to pay) to 21%, which is competitive with the rest of the industrialized world. Over the past five years, we have paid more than $10 billion in U.S. taxes. After the temporary effect of capital expensing wears off, I expect FedEx will pay billions more into the U.S. Treasury from the earnings produced by our investments.<p>The recent slowdown in U.S. companies’ capital expenditures is, in my opinion, due to trade disputes and the attendant global slowdown. We believe re-embracing TPP and TTIP and passing the new U.S.-Mexico-Canada trade agreement would reverse these trends in short order.<p>With the above background in mind, I urge readers to review the New York Times’s disparaging story from Nov. 17 about FedEx’s involvement in corporate tax reform and see a great example of polemics: printing selected facts, connecting unrelated events, and implying nefarious activities when there were none whatever. FedEx takes great pride in being a good corporate citizen—here and abroad—at all times.<p>The Tax Cuts and Jobs Act was a great achievement for the American people, and we are proud to have played a small role in passing this important legislation.<p>Mr. Smith is chairman and CEO of FedEx Corp.