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CEO pay outpaces company tax bills

By Kay Bell · Bankrate.com
Tuesday, August 28, 2012
Posted: 4 pm ET

The wealthy and what they do or don't pay in taxes is getting a lot of attention this election year.

The Institute for Policy Studies is adding more fuel to that fire with a report issued this month citing 25 of the highest-paid U.S. chief executives who pocketed more in pay last year than their companies paid in federal income taxes.

You probably aren't familiar with any of these CEOs. They're not celebrity execs who get a lot of press outside the business world.

But you know and probably are a customer of some of the companies they head. They include communications companies, energy firms, insurance companies and financial institutions, to name a few.

The 25 CEOs who pocketed more than their company paid in federal income taxes in 2011 raked in average compensation worth $20.6 million, according to the report from the liberal-leaning think tank. This is the 19th year that the Institute for Policy Studies has conducted the study, and these latest numbers are up 24 percent over the previous year's list.

On average, according to the report, the 25 firms these CEOs head reported nearly $1 billion in U.S. pretax income. The total amount of federal taxes that their companies paid in 2011 added up to $53 million -- and that was just from a handful of companies. A few others zeroed out their corporate tax bills, but most used tax breaks to get refunds.

Let me repeat that. They used tax breaks to get refunds. My focus is not on the refunds, although amounts like the $605 million that Broadcom and Boeing each got back last year from Uncle Sam is mind-boggling.

My focus is the tax breaks. These companies did nothing illegal. They just were able to take advantage of  a tax code that the Institute for Policy Studies describes as a powerful enabler of bloated CEO pay.

Legal, but costly corporate tax breaks

How does it work to the CEOs' and their companies' advantages?

The tax code currently places no real limit on how much performance-based compensation corporations can deduct from their taxes. The top five 2011 beneficiaries of this loophole, says the report, had a combined $232 million in deductible performance-based pay. If this loophole weren't available, the tax bills for these companies would have jumped $81 million, or an average of more than $16 million per CEO.

On the personal side of the tax ledger, the Institute says that the top five executive beneficiaries of this loophole in 2011 deferred $48 million in compensation. Without this loophole, their combined personal tax bills would have been $17 million higher.

The companies also ran their profits through subsidiaries in offshore tax havens. Combined, according to the report, 25 of the firms have 533 subsidiaries in tax-haven countries such as the Cayman Islands, Bermuda  and Gibraltar.

Other tax-saving tactics that came into play include accelerated depreciation allowed under the 2009 economic stimulus, research and experimentation credits and energy development subsidies.

Again, these companies are not breaking tax law. And most will argue that the money they didn't pay the Internal Revenue Service was used to improve the companies so they could hire more workers.

But with unemployment still stubbornly high, these tax savings don't look like they're paying off so much for folks who've been looking for work for years.

Instead, says the Institute, the four most direct tax subsidies for excessive executive pay cost taxpayers an estimated $14.4 billion per year. That's $46 for every man, woman and child in the United States.

Or put another way, those billions could cover the annual cost of hiring 211,732 elementary school teachers or creating 241,593 clean-energy jobs.

I'm not saying that some of the CEOs didn't do a good job. But there are lots of other folks who could do good jobs, too, if some of the costly tax breaks were eliminated and more tax money was available for programs and services that could help these non-CEO types get hired.

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3 Comments
marvin willerman
September 09, 2012 at 2:42 am

can you illustratewith mathematics how the tax deductibleperformance b ased compensation works

B
August 30, 2012 at 11:30 am

Just another prime example of the ultimate effect of LOBBYSTS on crooked politicians. Then some in office believe that corporations should have a hand in voting as individuals. Any form of lobbying is bribery and nothing but bribery. Again, the politial parties and legislators are guilty!!!!

Second, Every one of the 40% who never pay income taxes must be verified and why. One example are Farm credits for letting land go fallow etc. etc. Very high income grossing from $250,000 and up by acreage and fake farming to shield their "doctors" income from tax. These are among the 40% no income tax resulting from again, the lobbying and stupid legislators accepting bribes!

B
August 30, 2012 at 11:25 am

Just another prime example of the ultimate effect of LOBBYSTS on crooked politicians. Then some in office believe that corporations should have a hand in voting as individuals. Any form of lobbying is bribery and nothing but bribery. Again, the politial parties and legislators are guilty!!!!