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Striking McDonald's worker Bartolome Perez, 42, (L) protests outside McDonald's on Hollywood Boulevard as part of a nationwide strike by fast-food workers to call for wages of $15 an hour, in Los Angeles, California August 29, 2013. Fast-food workers stag
The public assistance that low wages force workers at many major restaurant chains to rely on have gotten attention recently—McDonald's workers, for instance, collect an estimated $1.2 billion in public assistance—but that's not the only way restaurant chains are passing on labor costs to taxpayers. While wages for workers at the bottom of the pay scale are so low they qualify for benefits like food stamps and Medicaid, pay for top executives is tax-deductible as long as it's "performance pay" like stock options. That allows the restaurants to save hundreds of millions of dollars in taxes, according to a report from the Institute for Policy Studies:
  • During the past two years, the CEOs of the 20 largest [National Restaurant Association] members pocketed more than $662 million in fully deductible “performance pay,” lowering their companies’ IRS bills by an estimated $232 million. That would be enough to cover the cost of food stamps for more than 145,000 households for a year.
  • One NRA member —Starbucks— was off the charts. CEO Howard Schultz pocketed $236 million in exercised stock options and other “performance pay” over the 2012-2013 period. That translates into an $82 million taxpayer subsidy—enough to raise the pay for more than 30,000 baristas to $10.10 per hour for a year of full-time work.
  • The next four largest beneficiaries of the CEO pay subsidy are fast food corporations. Chipotle, Yum! Brands (owner of Taco Bell, KFC, and Pizza Hut), McDonald’s, and Dunkin’ Brands each raked in CEO pay subsidies ranging from $12 million to $68 million over the period.
  • Among full-service restaurants, the company that has enjoyed the largest CEO pay subsidy is Darden, the owner of Olive Garden, Red Lobster, and several other chains. CEO Clarence Otis took in nearly $9 million in fully deductible “performance pay” over the years 2012 and 2013. That works out to a more than $3 million taxpayer subsidy.
Meanwhile, these restaurants and their lobby group, the National Restaurant Association are pushing to keep the minimum wage at a poverty level. McDonald's has even directly told its workers to apply for food stamps. These profitable companies can afford to pay workers enough to live on without food stamps, and they can afford to pay taxes on their executive pay—or their executives could take a small haircut on the tens of millions of dollars they're paid.

The minimum wage is ridiculously low; unlimited performance pay tax deductibility is straight-up ridiculous. Congress could and should fix both of these things.

Originally posted to Daily Kos Labor on Mon Apr 28, 2014 at 01:00 PM PDT.

Also republished by Daily Kos.

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Comment Preferences

  •  the amount passed on to the richest (3+ / 0-)
    Recommended by:
    elwior, issy, RustyBrown

    is amazing, and they complain about giving benefits to regular people, and are against 'welfare' for anyone who needs it to survive and spends it, which goes into the economy that gives the most to the rich.

    And they feel sorry for themselves, the misunderstood minority.

    Just shows that loving money and doing anything to get a pile doesn't make them smart enough to see they're eating their seeds.

    When they have all of it, what then?

    plus ça change, plus c'est la même chose

    by anna shane on Mon Apr 28, 2014 at 01:36:29 PM PDT

  •  But it's not just the restaurants (1+ / 0-)
    Recommended by:

    (and other corporations too) saving hundreds of millions in taxes, it's the executives themselves paying cut-rate tax bills on their stock options. For example, what's the tax bill on Howard Schultz's $236 million now, and what would it be if he was paid a salary instead?  

    The minimum wage is ridiculously low; unlimited performance pay tax deductibility is straight-up ridiculous. Congress could and should fix both of these things.
     Agreed, and Congress ought to pass the "Buffett Rule" as well, and have corporate executives pay their fare share of taxes like the rest of us.

    "We the People of the United States...." -U.S. Constitution

    by elwior on Mon Apr 28, 2014 at 01:46:08 PM PDT

    •  it's W2 income. (1+ / 0-)
      Recommended by:
      •  i normally find your contributions to be largely (1+ / 0-)
        Recommended by:

        of the irritating apologetic variety, but in this case i think you are absolutely correct, though I'm not clear on what the various categories are.

        exactly once in my life, i was fortunate enough to have some stock options to exercise. the year i exercised them, i was required to pay alternative minimum tax. if the situation/circumstance of CEOs is the same as mine was, then as far as I know there is no combination of clever tax dodges and loopholes and whatnots that will exempt those millions and millions of dollars from a comparatively high tax rate (i.e., relative to what the CEOs pay on their purely financialized -- which is to say, "capital gains" -- income).

        To put the torture behind us is, inevitably, to put it in front of us.

        by UntimelyRippd on Thu May 01, 2014 at 07:56:38 PM PDT

        [ Parent ]

        •  Most of his contributions are like this (1+ / 0-)
          Recommended by:
          johnny wurster

          (-5.50,-6.67): Left Libertarian
          Leadership doesn't mean taking a straw poll and then just throwing up your hands. -Jyrinx

          by Sparhawk on Thu May 01, 2014 at 08:09:34 PM PDT

          [ Parent ]

        •  I'm a tax lawyer and deal with this stuff all day. (1+ / 0-)
          Recommended by:

          But by all means, tell us more stories about that one time at band camp.

          •  You see what I mean about pointless (0+ / 0-)


            My story about that one time at band camp was in support of your statement. I qualified it with the note about categories, because I'm not a tax lawyer, I don't deal with this stuff all day, and I considered it quite possible that you might respond with a further clarification that distinguished my situation (as a non-executive, non-member of whatever-the-special-class-of-high-ranking-employees-is-that-have-various-different-rules-attached-to-them) from the situation of CEO.

            Instead, you just reinforced the impression that what you do is not "mostly correcting stupid misstatements", but rather, looking for opportunities to wave your viagra'd-up tax lawyer cock in the faces of people who still have the capacity to experience moral outrage over things that you accept -- and even advocate -- as ethically normal and sensible.

            To put the torture behind us is, inevitably, to put it in front of us.

            by UntimelyRippd on Fri May 02, 2014 at 08:51:38 AM PDT

            [ Parent ]

      •  Actually no... (1+ / 0-)
        Recommended by:

        For tax purposes, the strike price of an option is taxed at the Alternate Minimum Tax, which for the average CEO is 28%.  The spread between the sale price and the strike price is then taxed at regular income rates, which would be the highest rate for most of the same CEOs, or 39.6% I believe. So options do save % in taxation over the same options being paid as real income.

        •  actually, you don't know what you're talking (2+ / 0-)
          Recommended by:
          nextstep, VClib

          about. You're confusing ISOs with NQSOs. The former are subject to AMT, the latter are taxed as W2 wages. Because the former are limited to $100k becoming exerciseable each year and are not deductible to the company, we rarely see them with higher level execs.

          So take an NQSO with a 1 strike and 5 FMV. I do a cashless exercise and have 4 in cash. 4 gets reported on my w2 as wage, and economically it's just as if the company had bonused me out 4, and the tax treatment tracks that.

  •  Lower tax rates are not subsidies. (2+ / 0-)
    Recommended by:
    johnny wurster, nextstep
    One NRA member —Starbucks— was off the charts. CEO Howard Schultz pocketed $236 million in exercised stock options and other “performance pay” over the 2012-2013 period. That translates into an $82 million taxpayer subsidy—enough to raise the pay for more than 30,000 baristas to $10.10 per hour for a year of full-time work.
    Calling a lower tax rate a "subsidy" is pretty much butchering the entire meaning of the word.
  •  Another major tax differential is the Social Secu- (1+ / 0-)
    Recommended by:

    rity cap.  Lift that cap, and you'd start to see some equalization in the tax rates (SOME, though not enough).  

    Someone who earns minimum wage is taxed on every dollar they earn, someone who earns over $117K is not.  Since Social Security payouts are based on a tiered system, the tiers could be constructed on a reduced rate level to be sure that Social Security becomes solvent.  

    •  The cap plays a very important role (2+ / 0-)
      Recommended by:
      nextstep, Sparhawk

      in the structure of the entire Social Security system. Eliminating the cap would likely change SocSec as we know it. I wrote a diary about it and you can find it here:

      "let's talk about that"

      by VClib on Wed Apr 30, 2014 at 07:40:51 PM PDT

      [ Parent ]

      •  lift the cap (1+ / 0-)
        Recommended by:
        Constantly Amazed

        i understand your arguments that OASDI(old age, survivors and disability insurance) was basically a program sold by fdr as insurance for wage earners as they grew old. but i disagree that it would become a welfare program if the cap on wages subject to the tax were lifted and the benefits capped for very high income earners. there is no cap on the wages subject to medicare tax, and that doesn't seem to make people believe it is a welfare program. there will always be some who decry social security as welfare regardless.

        there is little actual reason why the OASDI should be applied just to the first $117,000(the 2014 wage base amount) in wages. it is an indexed amount tied roughly to an arbitrary wage base agreed upon by fdr and congress at the time they instituted the program in the 1930's. the medicare portion of the tax wasn't added to the equation until the 60's. social security benefits are earned by enough people who will benefit when they retire, or who are already retired, that there will continue to be broad support from what you call the "middle class." there are enough seniors out there receiving payments that support will likely always be widespread, especially with so many people now living longer lives. and it's not as though social security benefits provide enough income for most seniors to live on--far from it.

        so i say, cap the benefits accruing to a level somewhere around $250,000 in wages. maybe cap the employer share of the tax at the same level, and get some support from the business community, but remove the cap altogether for the employee share of the tax on high wage earners, something that will only affect those whose compensation exceeds $250,000 a year. it is a move that may blur the line a bit in calling it wage insurance, but make the tax a little more progressive. i think that's something most upper income taxpayers can afford, and that won't be too terrible to contemplate for the middle class. btw, i picked the amount of $250,000 somewhat arbitrarily, but it's a number kicked around in recent years as somewhat of a line at the top of middle class income. there might be a better number to choose.

        •  bobsnothere - what you are suggesting is a (1+ / 0-)
          Recommended by:

          second income tax on high income earners to fund transfer payments. If we are going to have a second income tax only for high income earners why not just raise their actual income tax and be honest about it?

          When you start changing the basic structure of SocSec as individual wage insurance you have fundamentally altered the program and changed its foundational principles. In my view it's wrong to make SocSec a vehicle for the transferring income rather than an individual wage insurance plan. Every dollar someone contributes to SocSec has to have a positive personal benefit to them or the program has been fundamentally altered.

          The difference in Medicare is that the benefit is fixed. As long as you are eligible the benefit is the same. No one receives a higher benefit if they pay more, that's how the Medicare program has always been structured. That's not how Social Security was structured and not how it operates.

          "let's talk about that"

          by VClib on Fri May 02, 2014 at 05:47:16 AM PDT

          [ Parent ]

          •  VClib, I have to respectfully disagree with you. (0+ / 0-)

            Some fundamental (imho) changes to Social Security have been made, and it hasn't led to the middle class, or any large group, for that matter, revolting against it. I think that one of the biggest has to do with the use of Social Security numbers. Originally started in 1936, shortly after enactment of FICA, SSN's were ONLY supposed to be used for the collection of FICA taxes and payment of benefits. They were NEVER supposed to be used for any other purpose. from the SSA's website:
                 "The Social Security number (SSN) was created in 1936 for the sole purpose of tracking the earnings histories of U.S. workers, for use in determining Social Security benefit entitlement and computing benefit levels. Since then, use of the SSN has expanded substantially. Today the SSN may be the most commonly used numbering system in the United States." Around 1940, to reassure people who worried that Social Security cards would become a form of national id, SSA starting printing the words "for social security purposes--not for identification" on  cards. That continued until 1972, the year Congress also made automatic adjustments (COLA's) to the annual cap on wages part of the law.

            The FICA tax originally gave only old age (OA) benefits to the wage earner. In 1937, survivor (S) benefits were added. It wasn't til 1956 that disability (DI) benefits were thrown into the mix. Now it's fully OASDI.

            Benefits were never supposed to be taxable, and the FICA tax was originally deductible for income tax purposes. But in 1983, the REAGAN administration carried thru a bill which started taxing benefits of higher income folks, and 1993, the CLINTON administration narrowly succeeded in raising the amount of our benefits which might be taxed.

            When the program started, many types of employment were exempt from FICA--something like half of all workers were covered. Over the years, more and more wage earners were included. Today, it's nearing 100%.

            There are many other changes that have been made over the years. Cumulatively, the changes have turned the system into something that FDR and the system's early supporters would barely recognize.

            Perhaps YOU don't view these changes as fundamental. But I think that what's a fundamental change and what's not amounts to a subjective opinion, and my views don't happen to be the same as yours.

            I don't propose eliminating the separation of Social Security trust funds from general tax revenues, and strongly wish to maintain it as a separate system designed only to pay benefits to retirees and their families when they die or become disabled.

            That's one fundamental change I don't support. I also believe that our society should put more effort into support of our senior community, including the spending of general tax revenues on programs for our venerated elders.

            •  bob - your views have many fans here at DKOS (2+ / 0-)
              Recommended by:
              nextstep, Sparhawk

              and we shall agree to disagree on SocSec as wage insurance as its fundamental benefit. I favor raising the cap to $200,000+ but eliminating the cap and capping benefits is a slippery path to a welfare program.

              "let's talk about that"

              by VClib on Fri May 02, 2014 at 11:13:07 AM PDT

              [ Parent ]

              •  not quite there (0+ / 0-)

                i think that what we disagree on is whether or not there's an actual single fundamental benefit to the system. i think of it more as an old-growth tree with a strong set of roots.

                old roots may die or be cut by people, but the tree can remain healthy, or at least look forward to many more years of life.

                no matter what's done with social security, there will be those who will call it welfare, or socialism, or some other nasty term they choose to attack fdr's triumph. and don't forget the privatizers.

            •  In this case, the angels are in the details. (0+ / 0-)

              The Social Security benefit that we each get is based on a tiered formula.  

              I wanted to reply quickly, so haven't pulled up that formula, but VERY roughly, the first X of a worker's average wage is multiplied by a factor that's less than 1.0 ( to make this explanation short and understandable, let's say, hypothetically,  0.6), the next X of a worker's average wage is multiplied by a factor that's smaller (let's say, hypothetically, 0.4).  I can't remember whether there's a third tier.  The results are added together to produce the final monthly benefit.  Let's say the first X is $2K a month.  Everyone who's earned an average monthly wage of $2K, gets the same benefit.  The person who's earned an average monthly wage of $3K gets more, but not half again what the $2K earners get.  

              The best way to lift the cap and make the benefit sustainable is to create additional tiers, and assign increasingly small factors to those tiers.  That way the high-earner would get more than the earner at the next lower tier, but not that much more.  

          •  ps (0+ / 0-)

            The Medicare tax is part of what you've termed a system of "transfer" payments. The tax is part of FICA, and it's impossible for me to view it as a totally separate system from OASDI.

  •  I don't get the CEO pay part (5+ / 0-)

    Pay in any form is a business expense.  It can and should come off the company top line.  

    Gross sales - cost of goods sold - expenses = profit

    If the company wants to give most of their profit to the CEO its up to them.

    Now I am 100% on board with the fact that by keeping their employee pay below a living wage is an artificial subsidy.  Personally I think we should write the tax laws to CHARGE companies for any employee who is paid so little they quality for welfare.

    It is well that war is so terrible -- lest we should grow too fond of it. Robert E. Lee

    by ksuwildkat on Thu May 01, 2014 at 07:54:31 PM PDT

  •  bankers (1+ / 0-)
    Recommended by:
    Calamity Jean

    don't forget the tax subsidy we give to investment bankers by allowing them to treat their performance bonuses as capital gain income instead of wages.

    •  We don't do that. (1+ / 0-)
      Recommended by:

      I banker bonuses are wages.

      You're thinking of the carried interest owned by private equity fund managers.

    •  bob - its not bankers who qualify (0+ / 0-)

      The number of investment professionals who have incentive compensation that qualifies for long term capital gains treatment is very small. It's likely less than 1,000 individuals in the US who have more than $100,000 of this very specific type of incentive income each year. To qualify the investment professional must manage investment funds structured as a partnership. So all those people who work for and paid by corporations aren't eligible. So that takes away the bankers as candidates. The people who do qualify manage partnerships funds like venture capital, private equity, hedge funds, oil & gas, real estate and movies. They all receive salaries which are W2 income, but because of some unique characteristics of partnership tax law their incentive income is treated as asset appreciation and qualifies for long term capital gains treatment. It's called a "carried interest". This benefit is a result of a US Tax Court case in the early 70s and every investment partnership structured since has had this carried interest feature.

      "let's talk about that"

      by VClib on Fri May 02, 2014 at 02:59:16 PM PDT

      [ Parent ]

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