Opinion

The Great Debate

Shared sacrifice – except for CEOs

By Matt Stoller
January 8, 2013

The hypocrisy over deficits and calls for shared sacrifice can be illustrated with one simple statistic. According to the Institute for Policy Studies, 25 of the most-well-paid chief executives got higher compensation than their companies paid in federal taxes.  There’s a class war on, as Warren Buffett has noted, and his class is winning it.

The drive for austerity, with its attendant manufactured crises, carries with it a host of mini-outrages making this point. Americans learned after the fiscal cliff negotiations ended that the final agreement, ostensibly to pass “tax hikes for the wealthy,” extended huge corporate handouts. These included special breaks for NASCAR, help for Hollywood movie studios, $3 billion a year for General Electric, support for mining and railroad companies, and even a push for electric scooters.

Outrage over this story flamed everywhere, from the floor of the House of Representatives to cable news networks, including ESPN. The anger at these corporate subsidies was justified because breaks like these are a symbol of a budget process designed to shift money and power to people who already have too much of it.

The real story of the fiscal cliff negotiations, and the coming debt ceiling debate, are corporate tax cuts and the CEOs who love them. There are many corporations that don’t pay taxes. They then pass along some of that increased profit to their CEOs, who also shelter their income from the Internal Revenue Service. It’s a veritable circle of life.

As David Cay Johnston has shown recently in his excellent book, The Fine Print, the middle class is at a double disadvantage. One, we actually have to pay taxes every year on our income. Two, we have to deal with a frightening overly complex tax code.

Let’s start with the corporations who don’t pay taxes. AT&T didn’t payany in 2011. GE and The New York Times got into a fight over an article about whether the sprawling electronics and banking conglomerate didn’t pay any taxes, or paid far too little. Bank of America, which got one of the biggest federal bailouts, also got a billion-dollar refund in 2010.

Meanwhile, the Treasury Department quietly gave the insurance giant American International Group, which received the biggest government bailout, a multi-billion-dollar tax break to make its bailout numbers look better. The company is now running a massive TV ad campaign trumpeting that it not only paid back the bailout money, but the nation made a profit.

Politicians often argue that closing corporate tax loopholes is necessary, but doing so won’t help raise anywhere near the amount necessary to make a dent in the deficit. But consider that if corporate revenue were raised to the proportion of federal taxes they made up in 1950, we’d get rid of about half of our trillion-dollar deficit.

The lack of tax revenue from corporations that benefit from the U.S. government’s court systems, legal protections, military protection and infrastructure is plenty cause for outrage. But the scam is actually deeper than a few corporate tax breaks.

Corporate CEOs and officers often don’t pay taxes on much of their income. But wait — the fiscal cliff deal was touted as a tax hike on the very wealthy, a change in the tax code that Annie Lowrey of the Times wrote would make the tax code more progressive than it has been since the Carter years.

Surely, if CEOs get large salaries, then they’d have to pay higher taxes under the new fiscal cliff deal, right? Actually, no.

“About 79 percent of chief executive officers at Fortune 100 companies,” according to Bloomberg, “were offered so-called non-qualified deferred compensation plans,” which allow them to “defer an unlimited amount of their salaries or bonuses on a pre-tax basis until a future date.”

Not only do these plans let high-paid business executives defer taxes for years, they allow them to work in a high-tax state, such as New York, but pay taxes where they retire —  in a state like Florida, for example, that has no income taxes.

This means that the parade of CEOs flowing through the White House in November and December to show support for the fiscal cliff deal weren’t supporting a deal that raised their taxes, thank you very much.

For example, Douglas R. Oberhelman, chairman and CEO of Caterpillar, ostensibly a proponent of raising taxes on the wealthy in the fiscal cliff deal, got $4 million in deferred compensation last year. Nice work, if you can get it.

The other problem these masters of the universe avoid — and middle-class taxpayers do not — is the matter of filing taxes. The system essentially imposes a complexity tax on those of us unable to afford expertise, and a complexity subsidy for those who can. The tax preparation industry helps the extraordinarily wealthy become fantastically wealthy by trading tips in magazines such as the Journal of Deferred Compensation: Nonqualified Plans and Executive Compensation. This one you definitely read for the articles.

Meanwhile, most of us confront a tax code that is frightening, and have overpriced software or predatory lending tax prep services as our allies. This is unnecessary. Governments around the world, as well as in a trial project in California, now do their taxes for their citizens. But Intuit lobbied to kneecap the IRS from doing this, from actually making our lives easier, because it may have threatened their ability to sell us software.

In other words, not only does the middle class pay more income proportionally than the corporate elite — and not only do the wealthy have perhaps the world’s most amoral nerds finding ways of making sure they pay even less in taxes than they already do – but the act of filing taxes is annoying and stressful when it shouldn’t be. The complexity of the system and the lack of actual aid to navigate it has consequences beyond taxes.

Unlike the CEO class, who appear never to have met a handout they couldn’t gorge on, the middle class doesn’t claim government benefits it’s due – $108 billion of unemployment insurance payouts went unclaimed in 2009.

We hate our tax system — and we should. We were right to be angry at the special breaks in the fiscal cliff deal. As it turns out, many corporate spokespeople were caught flat-footed by the revelations of corporate favors in the deal.

Marcus Jadotte of NASCAR said that the deal offered “greater certainty” for race-track owners — as if the racing industry depends on seven-year-depreciation schedules.

Kate Bedingfield, a former Obama administration official and current spokesman for the Motion Picture Association of America (love that revolving door), justified the tax credits by pointing to movies it helped finance, like Transformers: Dark Side of the Moon. It’s unclear how an apparent need for more overproduced Michael Bay movies with incoherent plots that still become huge blockbusters has become a talking point for corporate tax breaks. But it probably makes as much sense as any other argument they could offer.

Basically, taxpayers are subsidizing companies for the cost of doing business. A Transformers movie should be able to make money without tax breaks. Mining companies do not need tax breaks to buy safety equipment and train their workers in safety procedures — they need to be told to not kill their workers and to be held accountable if they do. A big chunk of GE’s profits shouldn’t depend on its ability to manipulate the tax code.

And CEOs shouldn’t get their income-tax-free compensation linked to profits enhanced by rebates from the IRS. Behind poor tax policies are not just corrupt practices like the revolving door — though there is plenty of that. The culprit is an ideology that declares corporations and the wealthy to be “job creators” that must be handled with delicate care and feeding, lest they refuse to create any jobs.

This is absurd. Hollywood has managed to make terrible, profitable movies for 100 years. Ronald Reagan, who led the charge to let businesses get tax favors, starred in many of them. GE managed to make money for 100 years without financial engineering. NASCAR has a great product; it doesn’t need taxpayer help.

Or, to put it in terms the corporate world might understand, we should not extend to it the soft bigotry of low expectations. We must force our downtrodden corporations to stand on their own two feet and pull themselves up by their bootstraps.

In 1950, corporate income taxes provided $1 in every $4 of federal tax revenue, and slightly less than half of state tax revenue. By 2012, corporate taxes provided about $1 in every $10 of federal tax revenue, and about $1 in $8 of state tax revenue. Under that system, the nation paid off the massive public debt we incurred during World War II.

If confronting the deficit is a major concern concern, the path is clear: Make corporations pay taxes. And make sure their CEOs have to live in the same world we do.

 

ILLUSTRATION: MATT MAHURIN

PHOTO (Insert 1): From left to right, Lloyd Blankfein, chief executive of Goldman Sachs Group, Jamie Dimon, chief executive of JPMorgan Chase, John Mack, chairman of Morgan Stanley, and Brian Moynihan, chief executive of Bank of America are sworn in before their testimony at the Financial Crisis Inquiry Commission in Washington January 13, 2010. REUTERS/Jason Reed

PHOTO (Insert 2): American International Group Inc. (AIG) corporate headquarters in New York, November 10, 2008. REUTERS/Mike Segar

PHOTO (Insert 3): Douglas Oberhelman, chief executive officer of Caterpillar and marquee speaker speaking in Calgary, Alberta, September 9, 2011. REUTERS/Todd Korol

PHOTO (Insert 4) Jamie Dimon (L), chief executive of JPMorgan Chase, John Mack (C), chairman of Morgan Stanley and Brian Moynihan, chief executive of Bank of America, testify before the Financial Crisis Inquiry Commission in Washington January 13, 2010. REUTERS/Kevin Lamarque

Comments
21 comments so far | RSS Comments RSS

When pigs fly.

Posted by tmc | Report as abusive
 

Term limits for congress is the only possible change that will stick, and really change anything.

Posted by tmc | Report as abusive
 

We must have a public referendom to get term limits. Politicians will not fire themselfs.

Posted by tmc | Report as abusive
 

While I agree that allowing large corporate entities to wet their beaks in tax money wont create jobs. There seems to be a sentiment that it’s more about stopping them from shedding jobs more then creating.

I would wager most middle class incomes (and some of the low) are purely at the discretion of the upper class earners. No matter where you go/ live. So this could be why you see some people posed as conservatives appeasing the upper class in a sycophantic manner. Because they think that’s gonna keep them their jobs, and they are justified in this fear.

As I’ve mentioned before, they have you by the nards, and there is nothing you can do whilst supporting your own status quo. Struggle, and you either hurt yourself or they squeeze. To be free, you have to be willing to become a eunuch…

Also, people forget that when you tax an established corporate entity that produces consumer goods. They always pass the tax on in the price of product, and it will be allowed. Not that I’m suggesting it but you may as well introduce GST (goods/ service Tax)… The end result will be the same as what you have now.

Posted by Azza9 | Report as abusive
 

Term limits will just cause the necessary expertise to run the country in the heads of lobbyists, who will make sure to know the system better than inexperienced members of Congress, and hence term limits actually _increase_ their power. You can be guaranteed that the free market will find the most experienced people to be lobbyists, why not let the public sector hire the most qualified people, too?

Publicly financed campaigns is an actual solution to the problem, freeing members from sucking up to PACs and lobbyists for the avg. $20,000 per week they need for their next campaign.

Posted by logicftw | Report as abusive
 

During the boom of the 90′s and early 2000, labor had the upper hand. They didn’t like that and are proving to be spitefull.

Posted by tmc | Report as abusive
 

In the 1990s, Clinton sacrificed the poor to reach a budget agreement., and the middle class shrugged with indifference. How could the middle class not know that they would be next?

Posted by DHFabian | Report as abusive
 

Term limits will have no good effect on helping the middle class. As long as voters, largely due to ignorance of the above realities, continue to make their political choices from listening to their preachers talk politics and bigotry, we will have the same situation, the same type of tax laws. As long as voters, for whatever reason, continue to elect right-wing congress contingents that will always have their hypocritical hands in the pockets of the corporate CEO’s, the new congress rep’s are going to be no different than the corporate congressional reps they replace.

On the other hand, the reps/senators who are in congress that truly do try to represent the people, and want to do things such as have a simple, fair tax code that will correct the wrongs described above, would also be subject to the same term limits as the congress reps and senators that are working for the corporate CEO’s.

What we need is education of the voters, to get the facts of the tax situation into their heads, to turn on the light bulb. This is the difficult thing because so many voters are not reading material such as the above, they persist in listening to their preachers, to Rush Limbaugh, to their friends “who know about these things”.

In the last election this very thing happened in our congressional district. A lawyer whose career has been in law enforcement both at state and federal levels ran against a business person, who had inherited a business and built it up. The business person spoke out against taking fed stimulus money. At the same time it was shown that his company had a contract of about $250,000 that was from stimulus money. Regardless, the right-wing faithful, which in our state is strongly influenced by a religion to vote a certain way, won out and elected the guy who spoke against what he was actually doing. What do you think this business/new representative guy is going to do when it comes to voting for a fair tax code in which the corps/CEO’s pay a fair share of taxes and the middle class is not penalized by the complicated system we have now? He of course will go with the same corporate tax breaks. He was voted in by tea party adherents, the “take our country back” mentality, by people who have no clue from who it really is that they need to take their country back.

As long as voters continue in some states with the right-wing mentality which includes having religion run our government (and religion having the same tax breaks that the corporations have), and includes voting based on bigotry, ignorance and other undesirable qualities that are encouraged by the Republican political operatives, we will have no improvement of our society.

Posted by taxcorps2 | Report as abusive
 

I’m no expert, but I’ve been writing for a while that it’s the corporations who are largely at fault for the near-collapse of the economy, and who will be responsible for its impending, total failure. I’m certainly not alone in that opinion out here either.

I don’t care one bit how much the CEOs make – congrats to all for earning a lot of money, sure wish I could, but I wouldn’t call them “Captains of Industry”. They shame the status of “Captain”. They have abandoned their ship – the American economy.

I blame Congress for being in bed with corporations and creating, supporting and rewarding our new, real government – The American Plutocracy.

They are “too big to fail” which nowadays means that most of us are “too small to succeed”. Here’s an example: try competing with Walmart. Go ahead – I double dog dare you.

Posted by JL4 | Report as abusive
 

As long as the myth continues that the corporate tax rate in the US is the highest in the world, at 35%, which implies that is what all corporations pay, nothing will change.

The companies that should be angry are those who do not have the resources to hire armies of accountants to allow them to pay little or nothing in Federal taxes. They then have to compete against companies that do.

A simple way to not pay taxes for corporations is to invest in job growth and creation in the US. But they don’t. Easier to send jobs overseas, write off that cost from taxes, and find other places to shelter income.

The other side has to be CEO packages. I have no problem with pay for performance. It just is difficult to actually find that happening. How annoyed companies must be when they have to disclose some of the outlandish perks given executives. And the nerve of having to be forced to ask shareholders, the actual owners of the company, their opinion on executive compensation.

Posted by pavoter1946 | Report as abusive
 

So, flat tax?

Posted by reason1 | Report as abusive
 

Money equals political power. The three branches of government act as restraints on each other. There is no such restraint for concentrations of money. Until there is, the USAs legislature and media will continue to serve as tools of the rich, and the rest of us, mere cattle.

Posted by RealityMan | Report as abusive
 

Why should I be anything but a criminal when it is obvious that our political system will never represent me. Certainly one might say I have a moral obligation, but the winners of the money war don’t believe in morality, although they say they do. It has to be only fear of punishment that would keep me on the side of legality. I believe most of america understands this. That is, the criminal who can gets away with the crime is a person to be envied. The honest person is just a slave who is not smart enough to get away with crime. So we have the honest slaves and the smart criminals. Americans love their smart criminals and hope some day to emulate them, it’s the real american dream.

Posted by brotherkenny4 | Report as abusive
 

How about cutting spending? Are corporations responsible for the government speding itse;f into debt….

Posted by Crash866 | Report as abusive
 

Your are pointing the finger in the wrong direction. Just like a liberal. Blame someone else and act like a victim. How about holding our government responsible for the debt they created? Naw just vilify the corporations for this mess and then tell everyone they caused it and should pay for it.

Posted by Crash866 | Report as abusive
 

Interesting article Matt and there is truth in your words that certain sectors do receive special considerations that are neither fair nor conducive to a healthy national treasury.

However, I suspect that you’ve never run a business and therefore don’t really understand the mechanics of profit and loss and why a smart business owner pays as little corporate income tax as is legally possible while in fact paying huge amounts of wage, fuel, and other sundry peripheral taxes.

It’s not cheating to plan ahead for a given tax year and spend down as much pretax profit as possible so that the final bottom line stays at or below the 15% minimum corporate rate. The tools to throttle that final taxable profit figure are equipment purchases, capital expenditures, and wages and bonuses for owner and employees. All of which are taxable events.

I agree with you the system does get gamed and current tax code is ridiculously complicated but the linchpin of your argument that low corporate income tax remittance is some sort of evil 1% conspiracy is just wrong.

Why would anyone pay 35% tax on every new profit dollar held in company, and then later dole it out to themselves and their employees to then pay another 15-35% in wage taxes? That’s double taxation friend.

Posted by CaptnCrunch | Report as abusive
 

While the article is a good short article on corporate taxes in general, it really doesn’t say enough about what is in the title – overcompensated CEOs and the taxes they pay personally. This is because it omits entirely discussion of Social Security taxes, which cause the highest combined tax rates on income to be paid by workers, while the CEOs have such a small percentage of their absurd salaries touched by Social Security tax that it only appears on the first paycheck of the year. Subjecting all compensation – salaries, deferred compensation, stock options, carried interests, perks, etc. to this taxes and taking the cap off income subject to Social Security taxes is key to both fairness and putting Social Security on a firm foundation.

If you are like me, you certainly enjoy having a few months of salary free of Social Security tax, until you realize that you are just getting a few insignificant crumbs while the CEO is getting a feast nearly every day of the year – at the expense of the fiscal stability of the entire nation.

Posted by QuietThinker | Report as abusive
 

Some of the comments regarding this piece reflect the underlying problem: voters and shareholders do not demand accountability and act on their own behalf. I agree with the comment that if voters would educate themselves (and stop blindly following the party line) they could start making an impact. Action, not complaining, brings change. Term limits? They’re called elections!

Posted by Hult | Report as abusive
 

@CaptnCrunch
False Statement:
“Why would anyone pay 35% tax on every new profit dollar held in company, and then later dole it out to themselves and their employees to then pay another 15-35% in wage taxes? That’s double taxation friend.”
a) Wages are not profit to the corporation and therefore not taxed as corporate income. There is double taxation here (although if not for b) you could argue about double taxation of dividends).
b) Read the article – very, very few corporations pay 35%, the actual average corporate rate is much smaller – close to 0% for many of our largest corporations.

Posted by QuietThinker | Report as abusive
 

Work with me here QT. IF a corporation holds enough profits to pay tax at the 35% rate in a given year THEN later pays out those post tax profits as taxed wages to employees, that is double taxation. The corporation paid taxes and the employee paid taxes on the same dollars.

I did read the article and my point is OF COURSE corporations spend down profits so they pay at the 15% or less rate, it would be ignorant to do otherwise. They do however pay LOTS of taxes on wages, equipment, fuel, and on and on.

It’s not a 1% plot, it’s how things work. What Matt was pointing out that I agree entirely with is certain sectors have been blessed with unfair advantage by our government and they game the system to all our detriment.

Posted by CaptnCrunch | Report as abusive
 

CapnC, you are an ignoramus. PROFITS are taxed at 35%, not REVENUE, which is used to pay salaries…

Posted by Benny27 | Report as abusive
 

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