Twenty-five of the 100 highest-paid US chief executive officers (CEO) earned more last year than their companies paid in federal income tax, a pay study said yesterday.
It also found many of the companies spent more on lobbying than they did on taxes.
At a time when lawmakers are facing tough choices in a quest to slash the national debt, the report from the Institute for Policy Studies (IPS), a left-leaning Washington think tank, quickly hit a nerve.
After reading it, US Representative Elijah Cummings, a ranking member of the Committee on Oversight and Government Reform, called for hearings on executive compensation.
In a letter to committee Chairman Darrell Issa, Cummings asked “to examine the extent to which the problems in CEO compensation that led to the economic crisis continue to exist today.”
He also asked “why CEO pay and corporate profits are skyrocketing, while worker pay stagnates and unemployment remains unacceptably high,” and “the extent to which our tax code may be encouraging these growing disparities.”
In putting together its study, IPS chose to compare CEO pay with current US taxes paid, excluding foreign and state and local taxes that may have been paid, as well as deferred taxes that can often be far larger than current taxes paid.
The group’s rationale was that deferred taxes may or may not be paid and that current US taxes paid are the closest approximation in public documents to what companies may have actually written a check for last year.
Compensation for the 25 CEOs with pay surpassing corporate taxes averaged US$16.7 million, according to the study, compared with a US$10.8 million average for S&P 500 CEOs. Among the companies topping the IPS list:
EBay: CEO John Donahoe made US$12.4 million, but the company reported a US$131 million refund on its 2010 current US taxes.
Boeing: CEO Jim McNerney earned US$13.8 billion, while the company paid US$13 million in federal income taxes and spent US$20.8 million on lobbying and campaign spending
General Electric: CEO Jeff Immelt earned US$15.2 million last year, while the company got a US$3.3 billion federal refund and invested US$41.8 million in its own lobbying and political campaigns.
Though the firms come from different industries, their tax breaks fall into two primary areas.
Two-thirds of the firms studied kept their taxes low by utilizing offshore subsidiaries in tax havens such as Bermuda, Singapore and Luxembourg. The remaining companies benefited from accelerated depreciation.
“I think it’s an exposure of weakness in a company if their profitability is dependent on their accounting department and not on making better widgets,” said Chuck Collins, an IPS senior academic and co-author of the report.
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