Executive Excess 2011: The Massive CEO Rewards for
By Sarah Anderson, Chuck Collins, Scott Klinger,
Institute for Policy Studies
August 31, 2011
Guns don't kill people, the old saw goes. People do.
By the same token, corporations don't dodge taxes.
People do. The people who run corporations. And these
people - America's CEOs - are reaping awesomely lavish
rewards for the tax dodging they have their corporations
In fact, corporate tax dodging has gone so out of
control that 25 major U.S. corporations last year paid
their chief executives more than they paid Uncle Sam in
federal income taxes.
This year's Institute for Policy Studies Executive
Excess report, our 18th annual, explores the
intersection between CEO pay and aggressive corporate
We researched the 100 U.S. corporations that shelled out
the most last year in CEO compensation. At 25 of these
corporate giants, we found, the bill for chief executive
compensation actually ran higher than the company's
entire federal corporate income tax bill.
Corporate outlays for CEO compensation - despite the
lingering Great Recession - are rising. Employment
levels have barely rebounded from their recessionary
lows. Top executive pay levels, by contrast, have
rebounded nearly all the way back from their pre-
This contrast shows up starkly in the 2010 ratio between
average worker and average CEO compensation. In 2009, we
calculate, major corporate CEOs took home 263 times the
pay of America's average workers. Last year, this gap
leaped to 325-to-1.
Among the nation's top firms, the S&P 500, CEO pay last
year averaged $10,762,304, up 27.8 percent over 2009.
Average worker pay in 2010? That finished up at $33,121,
up just 3.3 percent over the year before.
What are America's CEOs doing to deserve their latest
bountiful rewards? We have no evidence that CEOs are
fashioning, with their executive leadership, more
effective and efficient enterprises. On the other hand,
ample evidence suggests that CEOs and their corporations
are expending considerably more energy on avoiding taxes
than perhaps ever before - at a time when the federal
government desperately needs more revenue to maintain
basic services for the American people. This
disinvestment also undermines the infrastructure and
services that small and large businesses also depend
Investigative journalists and tax research organizations
have been documenting how U.S.-based global companies
are aggressively shearing - and even totally eliminating
- their federal income tax obligations. This past March,
for instance, The New York Times traced the steps
General Electric has taken to avoid U.S. corporate taxes
for the last five years. Citizens for Tax Justice, as
part of a forthcoming study on tax avoidance among the
Fortune 500, has identified 12 corporations that have
paid an effective rate of negative 1.5 percent on $171
billion in profits. How do corporations avoid taxes?
In our analysis of companies that last year paid their
CEOs more than Uncle Sam, the companies' low tax bills -
or large refunds - could not be explained by low profit
rates. A large majority of the 25 companies on our list
reported high profits in 2010. The low IRS bills these
companies faced reflected tax avoidance pure and simple.
Our 25 hyperactive tax-dodging corporations employed a
variety of avoidance techniques. Not all of these
techniques are nefarious. Some corporate tax breaks can
have redeeming social value. Incentives that encourage
our economic transition to a green energy economy offer
one example of these beneficial breaks. But such
incentives as these play only a minor role. The lion's
share of tax breaks reward corporate behaviors - from
"offshoring" to accelerated depreciation - that are of
questionable value to society, especially over the long
Ironically, and tellingly, corporations can even lower
their tax bills by overcompensating their executives.
The higher CEO paychecks soar, the more corporations can
deduct off their taxes.
Easier for a CEO to Enter a Tax Haven than for a camel
to go through the eye of a needle.No tax-dodging
strategy over recent years has filled U.S. corporate
coffers more rapidly than the offshoring of corporate
activity to tax havens in low- or no-tax jurisdictions.
Eighteen of the 25 firms highlighted in this study
operate subsidiaries in offshore tax haven
jurisdictions. The firms, all combined, had 556 tax
haven subsidiaries last year.
Tax havens are costing the federal treasury, by one
estimate, $100 billion a year. These havens are speeding
the transfer of wealth out of local communities and the
global south into the bank accounts of the planet's
wealthiest and most powerful. Tax havens, or more
accurately "secrecy jurisdictions," can also facilitate
criminal activity, from drug money laundering to the
financing of terrorist networks.
How do tax havens work? One common corporate accounting
technique, "transfer pricing," helps corporations shift
profits offshore. Technology and drug companies
regularly open shell companies - in tax havens - that
hold their intellectual property rights. They then
charge their U.S.-based operations inflated amounts for
the use of these rights. These inflated costs get
deducted off U.S. taxes. The overseas tax haven profits
go un- or lightly taxed. Adding insult to injury, a
coalition of corporate tax dodgers is now asking
Congress to reward their tax avoidance with a deeply
discounted five percent tax rate if they bring these
funds back home where many of them started.
This offshore tax gaming has spawned a massive global
tax avoidance industry, with teams of lawyers and
accountants who add nothing to market efficiency or
product development. This "shadow" banking industry
played a key role in the 2008 financial crisis. The
"shadow" system's reckless financial maneuvering
operated through layers of opaque offshore tax havens.
The two biggest bank recipients of U.S. taxpayer
bailouts - Citigroup and Bank of America - both just
happen to be tax haven-happy. Citigroup operates 427
subsidiaries in tax havens, the Bank of America 115.
Accounting games like "transfer pricing" have sent the
corporate share of federal revenues plummeting. In 1945,
U.S. corporate income taxes added up to 35 percent of
all federal government revenue. This year, corporate
income taxes will make up just 9 percent of federal
receipts. In 1952, the year Republican President Dwight
Eisenhower was elected, the effective income tax rate
for corporations was 52.8 percent. Last year it was just
10.5 percent. Proposals to rein in tax dodging and
Tax-dodging corporations argue they are breaking no
laws. They are just, the argument goes, operating "under
the rules that Congress has established." They are
indeed. But massive corporate outlays for lobbying and
campaign contributions shape those rules. The 25 firms
highlighted in this study spent a combined total of more
than $150 million on lobbying and campaign contributions
All the companies highlighted in this report benefit
enormously from their institutional presence in the
United States. They utilize our taxpayer-funded
infrastructure for transportation. They tap into
government-sponsored research and subsidies for
technological innovation. They expect the U.S. law
enforcement and judicial systems to protect their
intellectual and physical property. And they rely on the
U.S. military to defend their assets abroad.
U.S. corporations also benefit from the public education
of their workforces. In fact, 16 of the 25 CEOs included
in this study received at least a portion of their post-
secondary education in taxpayer-supported public
universities. Yet these same corporations remain content
to let others pay the bills.
We have, in short, a corporate tax system today that
works for top executives - and no one else.
In this year's edition of our Executive Pay Reform
Scorecard, we highlight the many efforts underway to
change the rules that are contributing to executive pay
excess. These include efforts to rigorously implement
the executive pay provisions in the Dodd-Frank financial
reform law, as well as more far-reaching proposals that
would use tax and procurement policies to discourage
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