It's time to close the tax loopholes that subsidize runaway executive compensation.
by Scott Klinger and Sam Pizzigati from CommonDreams
republished
by Paddy Ryan
A
generation ago, on National Secretary's Day, America's top corporate
executives used to take their prized office assistants out to lunch.
Times
change, and National Secretary's Day has become Administrative
Professionals' Day. But something else has changed. These days, CEOs
are getting the free lunches. Secretaries and all the rest of us are
picking up the tab. And not at Burger King either.
Our
current tax code has everyone in America essentially subsidizing the
pay of millionaire and billionaire CEOs. Deductions, tax credits, and
other executive-compensation loopholes total $14.4 billion annually,
the equivalent of $46 for each of America's 311 million citizens.
That
figure appears in "The
CEO Hands in Uncle Sam's Pocket,"
a new report we helped write for the Institute for Policy Studies.
Our research team dug deep into the tax code's weeds and pulled out
one glaring example after another of tax code provisions enriching
our already rich — at the expense of average Americans.
Our
tax code, for instance, lets corporations deduct all "reasonable"
costs of doing business. But what's "reasonable"? Over the
years, corporate chiefs have stretched that definition beyond all
reason. Years ago, they even claimed three-martini lunches as
"reasonable" business expenses.
Congress
eventually cracked down on that unpopular giveaway. Back in 1993,
amid rising public outrage over sky-high executive compensation,
lawmakers also tried to crack down on tax deductions for CEO pay.
Under a new rule, corporations could only deduct up to $1 million on
their tax returns for any individual executive's annual pay.
Unfortunately,
this new rule came with a built-in loophole. Any executive pay over
$1 million linked to "performance" could still be deducted.
You can guess what happened next: an explosion of "performance-based"
CEO compensation.
Corporate
titans soon started landing annual performance pay deals worth tens
of millions. Last year, Larry
Ellison
pocketed $76 million in "performance-based pay" for running
Oracle, the giant business software company. That ploy saved Oracle
$26 million in taxes. Overall, unlimited tax deductions on CEO pay
cost U.S. taxpayers nearly $10 billion a year.
CEOs
regularly partake in a variety of other tax-avoiding games that all
share one element in common: CEOs always win, the rest of us always
lose.
How
outrageous have these CEO victories become? Try visualizing this: The
IRS offers you a refund on all the taxes you've previously paid and
then informs you that you also won't have to pay taxes on your future
income for years to come. Sweet deal. Corporations get it all the
time — by paying their executives in stock options.
That's
just what Facebook did in a move that saved the company an estimated
$5.6 billion, including an approximately $500 million return of
previously paid taxes. But let's not pick on Facebook. Apple used
this loophole to save $260 million on its 2011 taxes alone, and
hundreds of other corporations have played this same game.
Add
up all the Facebooks and Apples out there, compute the cost of the
tax giveaways they use to stuff the pockets of their top executives,
and you end up with corporate tax bills over $14 billion a year less
than they should be. With this $14 billion, our nation could provide
health care for 7.3 million low-income kids or rehire over 200,000
laid-off public school teachers.
Warren
Buffett famously quipped that he has a lower tax rate than his
secretary. But that's an understatement. The secretaries of America's
CEOs are actually subsidizing their bosses' pay.
Let's
end this free lunch for CEOs. It's time to close the tax loopholes
that subsidize runaway CEO pay.
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