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Excerpt: "These companies are exploiting the U.S. tax code to send taxpayers the bill for the huge rewards they're doling out to their top executives."

Corporate CEOs are rolling in it while American taxpayers struggle to make ends meet. (photo: unknown)
Corporate CEOs are rolling in it while American taxpayers struggle to make ends meet. (photo: unknown)


"Fix the Debt" CEOs Enjoy Taxpayer-Subsidized Pay

By Sarah Anderson, Scott Klinger and Javier Rojo, Institute for Policy Studies

02 May 2013

 

new report by IPS and Campaign for America's Future shows that America's top CEOs are pocketing massive taxpayer subsidies at the same time they're pushing austerity cutbacks in government programs that benefit ordinary citizens.

REPORT KEY FINDINGS

Thanks to a "performance pay" tax loophole, large corporations in the United States today are routinely deducting enormous executive payouts from their income taxes. In effect, these companies are exploiting the U.S. tax code to send taxpayers the bill for the huge rewards they're doling out to their top executives.

  • During the three-year period 2009-2011, the 90 publicly held corporate members of the austerity-focused "Fix the Debt" lobby group shoveled out $6.3 billion in pay to their CEOs and next three highest-paid executives.[i]
  • These 90 Fix the Debt member firms raked in at least $953 million - and as much as $1.6 billion - from the "performance pay" loophole between 2009-2011. The exact full value of corporate windfalls from this loophole will remain impossible to compute until we have more complete mandated disclosure for executive compensation.
  • Top executives at these same Fix the Debt companies are aggressively advocating cuts to government programs that benefit the ordinary American taxpayers subsidizing their compensation. Many of these executives have also added to America's debt and deficit by using tax havens and other accounting tricks to have their corporations avoid paying their fair tax share.[ii]
  • Health insurance giant UnitedHealth Group enjoyed the biggest taxpayer subsidy for its CEO pay largesse. The nation's largest HMO paid CEO Stephen Hemsley $199 million in total compensation between 2009 and 2011. Of this, at least $194 million went for fully deductible "performance pay."[iii] That works out to a $68 million taxpayer subsidy to UnitedHealth Group - just for one individual CEO's pay. A just-released proxy reveals that Hemsley pocketed another $28 million in "performance pay" in 2012, which computes into a tax break for UnitedHealth of nearly $10 million.
  • Discovery Communications stood next in line for a government handout. Between 2009 and 2011, CEO David Zaslav pocketed $114 million, $105 million of this in exercised stock options and other fully deductible "performance pay." That translates into a $37 million taxpayer subsidy for Discovery and its lavish executive pay policies. In 2012, Zaslav hauled in enough additional "performance pay" to generate a tax break worth $9 million.

Even big losers win with the "performance pay" loophole. Gambling titan Caesars Entertainment has hemorrhaged money in recent years, driving CEO Gary Loveman's stock options underwater. Loveman managed, even so, to take home $9.6 million in cash bonuses between 2009-2011, a windfall that's generating taxpayer subsidies the firm can cash in to lower its taxes over years to come.

INTRODUCTION

Fix the Debt is a corporate-backed lobby group committed to slashing Social Security and other earned benefits and social insurance programs - all under the veil of "deficit reduction." But, as this report documents, the very taxpayers who pay into and depend on these programs and benefits are subsidizing excessive compensation for the top executives of Fix the Debt member corporations and other large firms.

These pages calculate how much the corporations Fix the Debt CEOs manage have benefited from a federal tax code loophole that lets major firms deduct unlimited amounts off their income taxes for the expense of executive stock options and other so-called "performance-based" pay. These CEOs are raking in huge taxpayer-funded bonuses at the same exact time they're insisting on deep cuts in the government programs that benefit ordinary Americans.

A loophole history

In 1993, amid widespread public revulsion at executive pay excess, Congress passed legislation that capped the tax deductibility of executive pay at $1 million. The ostensible message this legislation sent: No rational society can view annual executive compensation over $1 million as a reasonable business expense worthy of a tax deduction. Without putting a ceiling on executive pay, this reform aimed to prevent taxpayers from subsidizing amounts over $1 million per executive. But the law left a huge loophole. Corporations could exempt "performance-based" pay from the $1 million limit. This loophole quickly led to an explosion of "performance-based" compensation, particularly in the form of stock options.

Corporate boards of directors touted this new surge in stock options as a means to align the interests of executives and shareholders. In practice, options align only greed and the tax code. If a firm's shares decline in value over time, shareholders lose wealth. But executives with stock options lose nothing. In fact, during stock slumps, executives often receive boatloads of new options with lower exercise prices. In 2007, for instance, Goldman Sachs gave executives options to purchase 3.5 million shares. In December 2008, after the crash had driven Goldman shares to record lows, the bank's top executives received nearly 36 million stock options, ten times the previous year's total. This new grant positioned Goldman executives for massive new windfalls even if the bank's shares never regained their 2007 price level.

On the upside, stock options gains have no limit, a reality that encourages reckless, short-sighted executive behaviors designed to jack up share prices by whatever means necessary. What sort of reckless behaviors? Over the past two decades, the Institute for Policy Studies has documented the connections between massive CEO options payouts and corporate tax-dodging, excessively risky financial gambles, and accounting fraud.

Stock options also provide huge personal tax advantages for executives. If executives hold onto their shares for more than two years after the grant date and more than a year after the exercise date - the point at which the stock is transferred to the executive - they pay only the long-term capital gains tax rate on this income. This rate will rise from 15 to 20 percent as a result of the "fiscal cliff" deal, a rate still far lower than the new 2013 top marginal rate of 39.6 percent on ordinary income.

The performance pay loophole, in short, serves as a critical subsidy for excessive compensation. The larger the executive payout, the less the corporation pays in taxes. And average taxpayers wind up footing the bill.

For data on individual CEOs and corporations, tables, charts, methodology, and appendices, please see the full report.



[i]To analyze the tax implications of compensation, we included forms of pay that were taxable in the year received: salary, bonus, non-equity incentives, perks, and the value of options realized and vested stock. (Stock options are taxed in the year they are exercised and stock awards in the year they vest).The executives in the sample are those covered by Section 162(m) of the tax code: the CEO and next three highest-paid executives, excluding the CFO. For banks in the Troubled Asset Relief Program (TARP), 162(m) also applied to CFOs, and we added the CFO data for these banks during the years they participated in TARP. See annex for more detail.

[ii] See: http://www.alternet.org/economy/10-filthy-rich-tax-dodging-hypocrites-pushing-disastrous-austerity-america.

[iii]Hemsley received the bulk of his compensation in the form of exercised stock options, a pay category considered “performance-based.” He received much smaller amounts in the form of vested stock awards. For 2011, the company identified what portion of the value of this stock qualified “performance-based.” For the other two years, it did not.


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+6 # jimbo 2013-05-02 22:37
These shithooks sent me a fact free email asking me to support their activities, which I took a couple of minutes to look over before I deleted it. Why do these clowns always have to be seen screwing people, lying, doing whatever to add a little more power? I hope the poop's about to hit the fan, and the creeps are going all in to steal as much as they can before We the People take charge again. This should be a goal for all of us, Republican and Democrat.
 
 
+7 # MidwestTom 2013-05-03 06:59
I agree. The major problem in changing the system is how to accomplish the task. If we field a third party it will get crushed by the stupid voters who always vote for a straight ticket for one party or the other. If a good independent candidate were to somehow win the nomination of one of the two parties, there is no way either party s going to nominate a whole new slate to allow him to actually change things. This leaves us to the third choice, which is why the establishment has built the Civilian Army.
 
 
-4 # cafetomo 2013-05-03 03:23
Haw, haw, haw.

We get mad and make them do something about getting paid so much.

They get job getting paid so much.

Why we so stupid?
 
 
+13 # RMDC 2013-05-03 04:38
The ruling elite will always find ways of creating new tax loopholes because they control congress and the white house. The fact that there is any US gov debt at all is the result of its failure to collect taxes from the very rich and from corporations. In the 1960s corporations paid about 40% of all money collected by the USG. Today it is about 4%. If you include USG subsidies to corporaions, the net tax collected is way below zero.

Corporations and the ruling elite are sucking wealth out of the US at rates that are really not even imaginable. They want to attack social secuirty because that is a very large pool of money. And they want to get it.

Corporations and the ruling elites are so greedy that they want it all. They really don't care if all the people of the world starve to death, just so long as their wealth increases.

This is a real problem. There is no solution in sight. They write the laws, the hire the politicians, they control the economy.
 
 
+12 # tuandon 2013-05-03 05:56
"Screw the little guy" should replace "E Pluribus Unum" as our national motto. These "Takers" sneer at Romney's 47%, yet they take more money from taxpayers than the 47% do! And their Teabag prostitutes in Congressnot only allow this to happen, they actively advocate it. The systme needs to be shaken by the scruff of its neck.
 

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