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A new study finds that multi-million dollar CEO’s are putting more money into their pockets at the taxpayer’s (that would mean us) expense.

The Institute for Policy Studies has found that:

Nationwide, budget cuts have axed 627,000 public service jobs just since June 2009. Schools, health clinics, fire stations, parks, and recreation facilities—virtually no public service has gone unsqueezed. Tax dollars haven’t seemed this scarce in generations.
Yet tens of billions of these scarce tax dollars are getting diverted. These tax dollars are flowing from average Americans who depend on public services to the kingpins of America’s private sector. They’re subsidizing, directly and indirectly, the mega-million paychecks that go to the top executives at our nation’s biggest banks and corporations.
The true culprit here is not these robber-barons but our tax code, which enables such malicious inflation of greed to occur in the first place:
One key reason why: Our nation’s tax code has become a powerful enabler of bloated CEO pay.  Some tax rules on the books today essentially encourage corporations to compensate their executives at unconscionably higher multiples of what their average workers are paid.

Other rules let executives who run major corporations routinely reduce their corporate tax bills. The fewer dollars these corporations pay in taxes, the more robust their eventual earnings and the higher the “performance-based” pay for the CEOs who produce them.

Also as Raw Story states:
Lanai, a tiny resort island in Hawaii, has 18 miles of secluded beaches, no traffic lights and a population of just over 3,000. This summer, Larry Ellison, the CEO of Oracle, a California-based software company, bought 98% of the island for a sum reported to exceed $500m.

The Institute for Policy Studies, a Washington DC thinktank, says that a chunk of the money Ellison spent buying Lanai should have paid for elementary school teachers and clean energy jobs, instead of fulfilling the billionaire CEO’s vacation fantasies. That’s one conclusion of their new report, “The CEO Hands in Uncle Sam’s Pocket: How Our Tax Dollars Subsidize Exorbitant Executive Pay”, which points out that Oracle took advantage of a 1993 loophole in tax law to designate $76m of Ellison’s income as “performance-related pay”, which allowed him to avoid paying any taxes on the money.

And Ellison is not the only one (again from raw story).
Dozens of US CEOs have cashed in on this major tax incentive at an estimated cost to US taxpayers of $9.7bn last year. Statistics provided by National Priorities Project suggest that the same amount of money could have paid for 142,625 elementary school teachers, or healthcare for 4.96 million low-income children.
Some of the other findings that were reported by IPS:
•    Of last year’s 100 highest-paid U.S. corporate chief executives, 26 took home more in CEO pay than their companies paid in federal income taxes, up from the 25 we noted in last year’s analysis. Seven firms made the list in both 2011 and 2010.
•    The CEOs of these 26 firms received $20.4 million in average total compensation last year. That's a 23 percent increase over the average for last year’s list of 2010's tax dodging executives
•    The four most direct tax subsidies for excessive executive pay cost taxpayers an estimated $14.4 billion per year—$46 for every American man, woman, and child. That amount could also cover the annual cost of hiring 211,732 elementary-school teachers or creating 241,593 clean-energy jobs.
•    CEOs have benefited enormously from the Bush tax cuts for upper-income taxpayers. Last year, 57 CEOs saved more than $1 million on their personal income tax bills, thanks to these Bush-era cuts.
The entire report can be read at the IPS website, linked to above.

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Comment Preferences

  •  Yet More Proof They Didn't Build That! nt (5+ / 0-)

    We are called to speak for the weak, for the voiceless, for victims of our nation and for those it calls enemy.... --ML King "Beyond Vietnam"

    by Gooserock on Mon Aug 20, 2012 at 12:46:18 PM PDT

  •  It would be a simple change to the tax code to cap (9+ / 0-)

    the tax writeoff of executive compensation.

    A good cap would be $400,000 - the same as the President's salary.

    Companies could still pay whatever they can hoodwink their shareholders into, but why should excess compensation be tax deductible - making the rest of us subsidize it?

    NC-4 (soon to be NC-6) Obama/Biden 2012

    by bear83 on Mon Aug 20, 2012 at 12:55:53 PM PDT

    •  bear - the fundamental tax code structure (1+ / 0-)
      Recommended by:
      johnny wurster

      allows any corporation to deduct any actual business expense from income before determining taxable income. Executive compensation, paid in cash, is clearly a business expense and the $1 million salary restriction is an outlier. How equity awards are treated for tax purposes is a much more complex issue. However, I think this is an area where we should be having a public policy discussion and understand the sentiment to not allow executive compensation, beyond some threshold, to be deductible for tax purposes.

      "let's talk about that"

      by VClib on Mon Aug 20, 2012 at 01:56:24 PM PDT

      [ Parent ]

      •  The bottom line (0+ / 0-)

        to me is that companies should not be allowed to use excessive and unlimited executive compensation to avoid federal taxes. The tax code is riddled with loopholes to aide corporations and the wealthy. It increases the tax burden on individuals and is bad for the country.

        Companies could accomplish the same thing by giving every employee a share of that compensation and still get their tax break for a legitimate expense.

        But if a company thinks they can justify a compensation package worth tens of millions of dollars a year for a single person, there shouldn't be a taxpayer subsidy of it.

        NC-4 (soon to be NC-6) Obama/Biden 2012

        by bear83 on Tue Aug 21, 2012 at 05:55:23 AM PDT

        [ Parent ]

        •  bear - the federal government receives more income (1+ / 0-)
          Recommended by:

          When corporations pay high levels of executive compensation the federal government actually receives higher revenues. The top tax rate for individuals is the same as corporations, about 35%, but it is much easier for corporations to shelter income and reduce their effective tax rate than an executive receiving W2 income. In any event paying high executive compensation costs the federal government nothing. The diary only looks at one side of the equation, what the company pays, but omits the other side, how much the executive pays in taxes on the income received.

          And just to repeat my major point, no corporation pays higher executive compensation to reduce its tax liability. Each dollar of executive compensation may save 35 cents of taxes, but costs 65 cents of CASH. The entire theory is illogical.

          "let's talk about that"

          by VClib on Tue Aug 21, 2012 at 10:15:18 AM PDT

          [ Parent ]

  •  Hmmm, this study sounds like that (1+ / 0-)
    Recommended by:
    parse this

    one they did where they found that overall people tended to enjoy sex.

    Who'd ever have thunk it?

  •  This should be THE story of the election... (2+ / 0-)
    Recommended by:
    Shawn Russell, Larsstephens

    Yet we're dancing around it.

    Thus the reason that Romney's tax returns are so important and should be discussed daily!

    Corporations are driven by the bottom line, not by concerns for health, safety or the environment. This is why we need government regulations.

    by the dogs sockpuppet on Mon Aug 20, 2012 at 12:57:52 PM PDT

  •  We permit businesses to deduct expenses. (3+ / 0-)
    Recommended by:
    VClib, Shawn Russell, nextstep

    I'm not sure I'd call "the structure of the code itself" a subsidy, since the deduction for exec comp stems from the very nature of the code itself rather than being some unusual departure from the generally applicable rules of the code.

  •  Shawn - there is no logic to this theory (1+ / 0-)
    Recommended by:
    johnny wurster

    Here is the basic rule:

    Under Section 162(m) salaries for senior executives are limited to $1 million for tax purposes. Salaries are an expense under GAAP for earnings purposes, but may not be deducted from revenue when calculating taxable income. Incentive compensation, when paid, may be deducted if it meets the following criteria:

    1. Is established by the compensation committee consisting of independent directors.
    2. The payment of the incentive compensation is contingent on meeting objective criteria established within 90 days of the start of the reporting period. The incentive plan must outline the conditions under which the compensation will be paid.  

    The Institute for Policy Studies is suggesting that a company will pay an executive $1 as incentive compensation to save 40 cents of taxes. That still costs the company 60 cents of CASH. The $1 is fully chargeable against earnings for the purposes of determining earnings per share. I understand that the Institute may think that no executive compensation above $1 million should be deductible for tax purposes and that is a legitimate public policy point of view. However, companies do NOT pay their executives more to save taxes, that's complete nonsense.

    The other problem I have is that additional federal income taxes don't pay for local spending for teachers and community public services. Those activities are funded by state and local taxes.

    "let's talk about that"

    by VClib on Mon Aug 20, 2012 at 01:12:07 PM PDT

  •  The comments section of the linked report is (1+ / 0-)
    Recommended by:
    Shawn Russell

    interesting-- a lot of business types critical of it.

    That's one more thing to add to my long list of small problems. --my son, age 10

    by concernedamerican on Mon Aug 20, 2012 at 02:30:44 PM PDT

  •  Utter gibberish... (2+ / 0-)
    Recommended by:
    johnny wurster, nextstep

    "The fewer dollars these corporations pay in taxes, the more robust their eventual earnings and the higher the “performance-based” pay for the CEOs who produce them."

    So let me get this straight...the CEO wants to tank his companies earnings, and hence stock price, by taking excessive tax deductible compensation now, so that some day, maybe,  earnings will look a lot higher when compared to these lower earnings?

    Did i get that right?  How does this stuff get published?

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