Of America’s 30 largest corporations, seven paid their CEOs more last year than they paid in federal income taxes.
The trickle-down theory of corporate tax cuts is alive and well in America.
The theory holds that if we cut corporate taxes, corporations will have more money to invest in new jobs. Related to this theory are widely held fears that unless we give in to CEO demands for more tax breaks and direct subsidies, they will close up shop and move their jobs somewhere else.
It is a nice theory, but it hasn’t worked.
Corporations are quick to complain that the U.S. tax rate – 35 percent – is the highest among industrialized nations, but they neglect to mention that the average large corporation paid only slightly more than half that rate – just 19.9 percent – between 2008-2012. Corporate taxes as a share of GDP remain near all-time lows, while corporate profits set another record last year. And yet job creation remains anemic, with more than nine million Americans out of work, almost three million of these for more than six months.
Rather than reinvesting their profits in expanding operations and hiring more workers, U.S. corporations are instead engaging in record levels of repurchasing their stock and in buying out competitors through mergers.
Corporate stock repurchases have the effect of boosting earnings per share. Higher earnings per share in turn boost stock prices. And since CEO pay is largely dependent on stock price, this pathway leads to soaring levels of CEO pay, even while average worker pay continues to stagnate.
Merging with competitors also boosts corporate profits, but rather than leading to more jobs, mergers commonly lead to layoffs as redundant employees are cast off and join the army of unemployed Americans facing an uncertain future.
Corporations have also fought for – and won – lucrative loopholes and tax credits that have taxpayers picking up the normal costs of business that corporations used to pay for themselves.
“Our corporate tax system is so broken that large, profitable firms can get away without paying their fair share and instead funnel massive funds into the pockets of top executives.”
Our Report Findings:
As Congress appears set to prioritize the renewal of corporate tax breaks in the lame-duck session, our report reveals stark indicators of the extent to which large corporations are avoiding their fair share of taxes.
Of America’s 30 largest corporations, seven (23 percent) paid their CEOs more than they paid in federal income taxes last year.
- All seven of these firms were highly profitable, collectively reporting more than $74 billion in U.S. pre-tax profits. However, they received a combined total of $1.9 billion in refunds from the IRS, giving them an effective tax rate of negative 2.5 percent.
- The seven CEOs leading these tax-dodging corporations were paid $17.3 million on average in 2013. Boeing and Ford Motors both paid their CEOs more than $23 million last year while receiving large tax refunds.
Of America’s 100 highest-paid CEOs, 29 received more in pay last year than their company paid in federal income taxes – up from 25 out of the top 100 in our 2010 and 2011 surveys.
- Together, these 29 CEOs made nearly $1 billion last year, or $32 million on average. Their corporations reported $24 billion in U.S. pre-tax profits and yet, as a group, claimed $238 million in tax refunds, an effective tax rate of negative one percent.
- Combined, the 29 companies operate 237 subsidiaries in tax havens. The company with the most subsidiaries in tax havens was Abbott Laboratories, with 79. The pharmaceutical firm’s CEO paycheck was $4 million larger than its IRS bill in 2013.
- Of the 29 firms, only 12 reported U.S. losses in 2013. At these 12 unprofitable firms, CEO pay averaged $36.6 million—more than three times the $11.7 million national average for large company CEOs.
- The company that received the largest tax refund was Citigroup, which owes its existence to taxpayer bailouts. In 2013, Citi paid its CEO $18 million while pocketing an IRS refund of $260 million.
- Three firms have made the list in all three years surveyed. Boeing, Chesapeake Energy, and Ford Motors paid their CEO more than Uncle Sam in 2010, 2011, and 2013.
For corporations to reward one individual, no matter how talented, more than they are contributing to the cost of all the public services needed for business success reflects the deep flaws in our corporate tax system. Rather than more tax breaks, Congress should focus on addressing these deep flaws by cracking down on the use of tax havens, eliminating wasteful corporate subsidies, and closing loopholes that encourage excessive executive compensation.
Our Full Report:
Image Credits: Icon Pak by Freepik / Flickr users Beverly & Pack, Danielle Scott, and Woodley Wonderworks. Used under a Creative Commons license.