Before the deficit reduction “super-committee” embarks on a $1–2 trillion course of human slashonomics, it should take a hard look at the Institute for Policy Studies’ (IPS) eighteenth annual executive compensation report, which details how corporations are rewarding CEOs for aggressive tax avoidance—to the tune of at least $100 billion in lost tax revenues every year.
Executive Excess 2011: The Massive CEO Rewards for Tax Dodging reveals that last year twenty-five of the 100 most highly paid CEOs took home salaries greater than the amount their companies paid in 2010 federal income taxes. And it wasn’t because the corporations weren’t making dough—they averaged global profits of $1.9 billion, and only seven reported losses in US pre-tax income.
But these twenty-five companies shielded their profits in 556 tax haven subsidiaries in places like the Cayman Islands, Isle of Man, and Singapore, which proved to be a lucrative tax dodging strategy for the CEOs themselves: the twenty-five CEOs averaged $16.7 million in compensation, compared to $10.8 million for their peers in the S&P 500.
“What we’re seeing here is tax dodging, pure and simple,” says Sarah Anderson, who directs the global economy project at IPS and has coauthored the Executive Excess report for eighteen years running. “And tax dodging that’s benefiting the CEOs of these companies personally.”
It’s not that the corporations are breaking the law. Indeed, the report co-authors emphasize that tax dodging isn’t illegal. But Anderson points out that the laws are “the result of a corrupt system where hundreds of millions of dollars spent lobbying can result in these kinds of crazy, corporate tax loopholes.”
That’s why twenty of the twenty-five companies who paid their CEOs more than they paid in federal income taxes also spent more on lobbying lawmakers, and eighteen contributed more to the political campaigns of their preferred candidates than they paid to the IRS.
“GE is sort of our world champion when it comes to tax dodging," says Anderson. “They were also number one in lobbying and political campaign spending, with about $42 million spent on that last year.”
GE paid CEO Jeff Immelt—who also is chairman of President Obama’s Council on Jobs and Competitiveness—$15.2 million. The company had more than $5 billion in US profits, yet reaped $3.3 billion in federal income tax refunds. (You should be receiving your thank-you note in the mail any day now.)
Report co-author Chuck Collins, who directs the IPS program on inequality and the common good, notes that the offshore tax havens have created a “two-tier” corporate system in which domestic businesses that pay closer to the 35 percent statutory rate are competing against global businesses that game the system.
“This is really bad for business and bad for local domestic businesses in particular,” says Collins.
IPS is working with business allies to close loopholes, broaden the tax base and reduce rates, creating a fairer system. Collins also points out that the common conservative argument that US companies pay one of the highest tax rates in the world at 35 percent is a canard. In fact, thanks to all the gimmicks courtesy of corporate lobbyists and an obliging Congress, the effective rate was 25 percent in 1988 and has plummeted to 10.5 percent today—among the lowest in the world.