CEO Pay Loopholes Cost Taxpayers $20 Billion Each Year

[Earth Bound Misfit]

Source: AFL-CIO NOW Blog



A new report shows tax and accounting loopholes allow top executives and corporations to avoid paying about $20 billion a year in taxes. The report, Executive Excess 2008: How Average Taxpayers Subsidize Runaway Pay, released this week by the Institute for Policy Studies and United for a Fair Economy, calculates the annual cost to taxpayers of the five tax and accounting loopholes that encourage excessive executive pay. Even worse: Many large corporations are not paying any taxes at all.

The authors point out that the average CEO of a large U.S. company last year received $10.5 million in total compensation, 344 times the pay of the average U.S. worker. Thirty years ago, the ratio was 35:1. The top 50 private equity and hedge fund managers in 2007 pocketed an average of $588 million each, or 19,000 times as much as the average worker.

If this trend continues, the report says, the gap between CEO and worker pay will grow wider since industries that are adding the most jobs have far wider pay gaps than those losing the most jobs. The best solution to narrowing this gap, the report says, is for Congress to pass labor law reforms that help more workers to exercise their freedom to bargain collectively for fair compensation. The Employee Free Choice Act, which working people have made a key issue in the 2008 election, would allow workers to freely choose how they want to form a union.

--snip--

According to Executive Excess, the most expensive CEO pay tax loophole is something called the stock option accounting double standard, which is a discrepancy in accounting rules that allow companies to value stock options on their grant dates, not on the day executives cash them in. Since the value of the stocks usually rise, the company avoids paying taxes on the higher value. The report estimates that this double standard accounts for half of the $20 billion in lost tax revenue.

The other loopholes and their cost to taxpayers include:

Preferential capital gains tax treatment of “carried interest,” a pay practice for private investment fund managers that allows them to count significant income as capital gains instead of professional fees. The report says this practice costs taxpayers $2.6 billion in unpaid taxes a year.

Unlimited deferred compensation accounts, a perk for CEOs at large companies, which costs $80.6 million in lost revenue. The median value of top executives’ deferred payments is $4.5 million, according to Equilar, a pay analysis firm, yet most taxpayers are limited to a $15,500-a-year maximum they can shield in a tax-deferred 401(k) account.

Even more deferred compensation is stashed in offshore accounts. The study says it costs taxpayers $2.1 billion a year, but a recent Senate investigation pegs the price at $100 billion a year.

Unlimited deductibility of executive compensation, which allows companies to deduct the cost of executive compensation from their income taxes, as a business expense, which costs $5.2 billion annually.

--snip--

This is the 15th annual report on CEO pay issued by the Institute for Policy Studies and United for a Fair Economy. Click here to download the report: http://www.faireconomy.org/files/executive_excess_2008.pdf

[no_hypocrisy]

1. That's chutzpah.

First you get tax breaks, and then you don't pay the rest.

[Earth Bound Misfit]

2. No Billionaire Left Behind! n/t

[hfojvt]

3. $20 billion a year is, of course, not nearly as much

as the amount they got 'legally' from the Bush tax cuts that they bought.

[Occulus]

4. This is the part of the OP that caught my eye

The top 50 private equity and hedge fund managers in 2007 pocketed an average of $588 million each,"

:wtf: :wow: :grr: :argh:

[Earth Bound Misfit]

8. The top five each collected over $1 billion

These private investment fund magnates hardly seem to need taxpayer assistance. Yet they get it — in massive amounts. Our current tax code allows top private investment fund managers to pay taxes, as investor Warren Buffett has repeatedly noted, at lower rates than their office receptionists. http://www.cnbc.com/id/21543506/site/14081545/

Tom(Brokaw): You've talked about in your own office, for example, you pay a much lower tax rate with all of your wealth than, say, a receptionist does.

Warren: That's exactly right, Tom, and I think the only way to do it is with specifics. In our office 15 people cooperated in a survey, out of 18, I didn't make anybody do it. And my total taxes paid, payroll taxes plus income tax, mine came to 17.7 percent. The average for the office was 32.9 percent. There wasn't anybody in the office, from the receptionist on, who paid a lower tax rate. And I have no tax planning, I don't have an accountant, I don't have tax shelters. I just follow what the U.S. Congress tells me to do...

[Selatius]

13. Very few people who have that much power are liberal like Warren.

Warren is honest enough to admit his class is crushing the working class.

[TahitiNut]

5. It sounds like they merely broke into Dick Cheney's financial files.

:shrug:

[Thothmes]

6. Loop holes created by the Congress

and allowed to continue by the Congress.

[Earth Bound Misfit]

9. Any bills to plug executive-friendly tax loopholes...

would face an almost certain pResidential veto. In 2009, with a new face in the White House, prospects for legislation could change.

[Thothmes]

16. Mayby. Only if our Congress

takes action to close them specifically. Some of these loop holes go back for decades. They have survived both Pub and Democratic Administrations. In many many cases the benificiaries of these loop holes are also big contributors to political parties of both persuasions. It seems to me, that once a Congressman gets elected their biggest overriding concern is being re-elected. Maybe I am being pessimistic, but I do not see any radical change in our tax codes coming anytime soon.

[hootinholler]

7. K&R

[Overseas]

10. K&R -- it boggles the mind to read about CEO pay trends. /nt

[ihavenobias]

11. I'm very familiar with much of Obama's tax plan but I'm not sure if he addresses loopholes

Does anyone have links to info explaining Obama's take on corporate tax loopholes, etc.?

[Earth Bound Misfit]

14. He has said he will close the "carried interest" loophole

http://obama.3cdn.net/b7be3b7cd08e587dca_v852mv8ja.pdf

A COMMITMENT TO FISCAL RESPONSIBILITY

Barack Obama’s plan will provide $80-85 billion in tax relief to America’s workers, seniors, and
homeowners. Unlike President Bush, whose fiscally irresponsible tax cuts that traded the budget
surpluses of the 1990s to record deficits today, Obama has a plan to pay for his tax reform plan. In addition to closing the corporate loopholes and cracking down on international tax havens, he will pay for middle class tax relief by and increasing the highest bracket for capital gains and dividends and closing the carried interest loophole.

[Selatius]

12. 20 billion is probably enough to put every college student through school DEBT-FREE.

Your average pell grant is not even 3000 dollars a semester.

[Initech]

15. Every day I see the same story 2 or three times and it really pisses me off.

And that story is this:

Some Fortune 500 company (insert one: AOL, United, American, Dell Computer, and so on) is having some "financial" troubles, which the CEO or some other high level executive uses as an excuse to fire 2,000 employees. He quickly announces his "retirement" before the employees can form an angry mob and he makes somewhere to the tune of $25,000,000 (or more) in the form of a "compensation package" and is never heard from again.

Argh this shit needs to stop now. :argh: