Study Finds That Some CEOs Made More Money in 2010 than Their Company Paid in Taxes

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August 29, 2011; Source: New York Times | The 18th annual report on Executive Excess released by the Institute for Policy Studies on Wednesday reports that at least 25 of this nation’s most profitable corporations pay their CEOs more than the companies pay in taxes. The companies on the list, which includes Verizon, General Electric, EBay, and Boeing, each made an average of $1.9 billion in profits. Via a variety of tax-reduction strategies, including hundreds of offshore tax haven subsidiaries, these companies were able to significantly lower their tax bills, and some companies actually got tax refunds. Verizon, for instance, received a refund of $705 million from the federal government while paying its CEO $18.1 million in compensation.

Adding insult to injury, says the report, the gap between CEOs and other workers increased in 2010, with CEOs in 2010 taking home compensation that is equal to 325 times the pay of an average worker, up from a 263:1 ratio in 2009. Among the S&P 500 companies, CEO pay was up 27.8 percent in 2010, while the pay for an average worker rose by only 3.3 percent.

Chuck Collins, a senior scholar at the institute who co-wrote the study, said, “Instead of sharing responsibility for addressing our nation’s fiscal challenges, corporations are rewarding CEOs for aggressive tax avoidance.” The report also found that the 25 corporations highlighted in their report spent more than $150 million on lobbying and campaign contributions last year.

The financial data in the report was taken from the companies’ regulatory filings, and some of the featured companies disputed the findings. The reporter for the New York Times noted, “Even in a year when a company claims an overall tax benefit, it may pay some cash taxes while accumulating credits that can be redeemed in future years. For instance, General Electric reported a federal tax benefit of more than $3 billion in 2010, but company officials said they still expected to pay a small amount of cash taxes.” Meanwhile business leaders are currently lobbying for further cuts in corporate taxes, claiming that the 35-percent statutory corporate tax rate in the U.S. has a smothering effect on business operations here.—Ruth McCambridge

  • Michael Wyland

    I’m not sure what this story’s nexus to the nonprofit sector is, other than the organization issuing the study sounds like it might be a nonprofit.

    “Aggressive tax avoidance” is a legal strategy and a fiduciary responsibility of a corporation to its shareholders. I’m not sure what “sharing the responsibility for addressing our nation’s fiscal challenges” means, but it sounds like the authors somehow believe that corporations shouold voluntarily pay taxes in excess of those required by law.

    As for CEO pay, there are many who would agree that CEO pay generally is too high, based on a number of metrics. Unfortulately, one of the key contributing factors in executive compensation was ham-fisted attempts by Congress to regulate corporate pay in the 1980s. Two results of these efforts are aggressive use of compensation surveys, which tend to accelerate pay increases, and non-salary compensation, which allows corporations and executives to take much of their pay “off-books”.

    Ironically, reducing the statutory 35% corproate income tax rate would probably increase corporate tax revenues because it would make it less advantageous to warehouse cash and devise shelters to legally avoid losing over a third of their profits.

    Those who blindly believe that raising tax rates results in increased tax revenues forget the economic rule of “opportunity cost.” Those who wish to increase government tax revenues need to focus on revenue goals rather than fixating on rates. When a taxpayer’s tax liabilities become competitive with the costs of legal tax avoidance, paying taxes becomes a sound fiduciary action.

  • Roger Packard

    Here’s a modest proposal: tax all corporations–for-profit and non-profit– at a rate based on the ratio of highest total compensation paid to lowest, e.g. 0% for a ratio of 10 or less; 10% for a ratio of 15; 20% for a ratio of 20; 100% of income for a ratio of 60 or above. To make the proposal palatable to Republicans, you could even couple this to elimination of the minimum wage!

  • Michael Wyland

    [First, my apologies for the misspellings in my original post. I should have proofread the message before leaving for my lunch appointment.]

    I’ve heard Roger’s suggestion and similar ones from both political liberals and from libertarians. A better idea is one already in practice at some publicly traded companies. They tie CEO compensation and managerial compensation so that differentials between levels of management are reduced.

    The benefits of this approach are several. First, it’s a free market approach to a free market problem. Second, it democratizes pay to the benefit of both the corporation and its managers, tending to increase managerial pay while restricting increases in senior executive pay (since the consequential effects on overall corporate payroll are significant). Third (related to the first point), when government gets into the business of regulating compensation, citizens spend time, effort, and capital on legally avoiding the clutches of the regulations, and they usually succeed. If they don’t succeed, many of the most productive and valuable among them seek another way to succeed. This leads to the fourth benefit, namely, the ability for the corporation and its leaders to balance the need to compensate in line with value and the need to be responsible to shareholders by not inflating personnel costs above market (especially competitors’) rates.

    To those who wonder about non-managerial wages, it’s important to remember that market forces are at work in that environment, and better than at managerial levels. The minimum wage sets a base wage, though relatively few people are paid that wage as full-time employees. Most either receive raises and promotions or are working in temporary positions while attending school or as supplemental part-time income.

    [It’s true that some union contracts set pay rates based on a multiple of minimum wage. This is one reason that unions love to see increases in the minimum wage despite few or no union members working for minimum wage.]