Which would you think would be larger for Ford Motor, a company that last year reported revenues of $139.4b: the taxes it pays the US federal government or the compensation it pays its CEO?
If you picked option B, congratulations – you may be cynical, but you’re right. Alan Mulally, Ford’s CEO, pocketed a compensation package that totaled $23.2m while Ford itself got a US federal tax refund of $19m.
And Ford isn’t the only company to pay its CEO more than it forked over to Uncle Sam.
Seven of the country’s 30 largest corporations paid more to their CEOs than they did in taxes last year, according to a just-released study by the Center for Effective Government and the Institute for Policy Studies.
The biggest gap between executive pay and taxes was at Citigroup. Michael Corbat, Citigroup’s CEO had a compensation package that totaled $17.6m.
At the same time, Citigroup qualified for a $260m tax refund from the IRS, thanks to a special waiver that enabled it to capture the full tax benefits of buying unprofitable businesses. This could be a tax gift that keeps on giving, as the bank has been on a tear to keep earning more to take full advantage of the provision.
The rift between tax burden and executive pay for big companies is “getting worse”, says Scott Klinger, director of revenue and spending policies at the Center for Effective Government.
Since the Center for Effective Government and the Institute for Policy Studies published their first report in 2010, the average compensation of the CEOs they single out has climbed from $16.7m to almost $32m. Meanwhile, corporate profits zoom higher, while the effective tax rate, in absolute terms and as a percentage of GDP, languishes near historic lows.
That’s not all. There’s a widening rift between corporate profits and the jobs they create. After tax, corporate profits last year accounted for 10% of GDP, higher than ever recorded. The contribution of employee incomes to GDP has been sliding steadily lower since the 1970s, however, and Klinger doesn’t see this as a coincidence.
Indeed, he notes that most of the corporations whose names appear on his list – nearly all of which are profitable – have been nearly as active reducing their workforce over the past year as they have been trying to cut their tax burden.
Washington state gave Boeing $8.7bn in tax breaks to ensure that the 777x was built in the state, but the aerospace company has been shifting engineering jobs to lower-wage areas, saving the company $100m a year and resulting in layoffs. Citigroup and JP Morgan Chase – both on “the list” – have slashed jobs in the past few years. Ford has been closing down plants and axing jobs, too.
Of course, if these companies were doing anything clearly illegal, this would be a matter for the IRS to investigate rather than a policy question for us to consider in these pages.
But none of this is illegal. The reason for this state of affairs is the structure of the corporate tax code, full of all kinds of creative tax incentives, like the one that allows poultry farmers to burn chicken waste to generate electricity. Really.
Klinger points out that Apple, Citigroup, Ford and all the other large US companies that make great efforts to minimize their tax bills also derive tremendous benefits from the system: tapping into everything from publicly funded infrastructure systems like ports and highways to education and even the operation of the US patent office.
The list that he and his research partners compiled, he says, just reflects those who are taking the greatest advantage of those US government benefits, while giving nothing back.
“These are powerful institutions, using their profits to acquire political muscle to ensure they get a free ride on stuff that they leave other people to pay for,” Klinger says.
Some of these corporate tax breaks are long established and may make sense, if you’re a corporation. For instance, a business that incurs a loss in one year can deduct those losses against a future year’s profits – a tax benefit known as a tax loss carry forward.
Individual investors get the same kind of break if they lose money on an investment, but don’t expect special treatment on your regular income taxes.
“You may be unemployed, to the point where you have to sell your wedding ring to buy food,” Klinger says. “But you don’t get a tax holiday when you start working again. You’ll be paying income tax from the first paycheck onward. Life is easier for a corporation.”
In the past, Boeing has objected to being included on Klinger’s list. (This year, it ranks #2; CEO James McNerney earned $23m in compensation last year, while the company earned an $82m tax refund, the study’s sponsors calculated.)
Boeing’s tax liability is deferred until the aircrafts that it builds are delivered. But Klinger points out that those deferred taxes could take many years to materialize and until they are booked, they still haven’t been paid – and Boeing has earned its place on his list.
The alternative? Companies can broaden their view of what is in their own best interests. Ford has a stake in the highways being in good repair; in being able to hire an educated workforce; in being able to file patents to protect its intellectual property – something that is better enforced in courts here than in many other corners of the world.
So shouldn’t it weigh those benefits along with its immediate obligations to its shareholders? Indeed, if I were a Ford shareholder, I suspect I’d want the company to be thinking along just those lines.
Comments (…)
Sign in or create your Guardian account to join the discussion