Taxpayers shouldn’t have to subsidize corporate tax dodgers or bloated CEO salaries.


By CHUCK COLLINS and SARAH ANDERSON

Taxpayers shouldn’t have to subsidize corporate tax dodgers or bloated CEO salaries.

A recent Government Accountability Office study found that two-thirds of U.S. corporations paid no federal income taxes between 1998 and 2005. These same companies reported trillions of dollars in earnings.

What’s the hustle? A U.S. corporation pretends to make all of its profits at a subsidiary based in a place like the Grand Cayman Islands that has no corporate income tax. Meanwhile, the U.S. branch of the company reports only losses. No U.S. profits, no taxes.

As a result, two-thirds of companies pay nothing for highway construction, national defense, environmental protection, education or public health. They benefit directly from government-funded research and legal protections for their property, yet they contribute zip toward the costs we all should share.

Corporations play a similar game with executive pay. By employing a variety of tax loopholes and accounting tricks, they reduce their taxes and shift the bill onto the backs of the citizens.

A new report by our organization, the Institute for Policy Studies, estimates that we, as taxpayers, subsidize bloated executive pay to the tune of more than $20 billion a year. That’s twice the amount the federal government spends annually for children with disabilities and special needs.

Capital gains

Take the “Wall Street kingpin subsidy.” In 2007, James Simons pocketed $2.8 billion for running Renaissance Technologies, a hedge and private equity fund, according to Alpha magazine. Thanks to a loophole, the Internal Revenue Service treats much of the compensation Simons and other investment fund managers earn as capital gains, which is taxed at less than half the rate as ordinary income.

The cost to taxpayers of this tax loophole: $2.6 billion a year.

When Congress tried to eliminate this preferential treatment last year, Wall Street lobbyists swarmed all over Capitol Hill, and the effort withered.

Stock option accounting games are another way taxpayers contribute to CEO largesse. Corporations report one compensation figure to their accountants when they award CEO stock options and report a different, often much higher figure to the IRS when the CEO cashes in the options. With this sleight of hand, companies inflate their earnings to shareholders and reduce their tax bills. The cost to the rest of us: $10 billion a year.

Some congressional leaders, like Rep. Barbara Lee, D- Calif., are pressing for change. Her proposed legislation, the Income Equity Act, would cap the deductibility of CEO pay at no more than 25 times the pay of the firm’s lowest paid worker. This provision would reduce taxpayer incentives for bloated pay and could generate more than $5 billion a year in revenue.

Congress must eliminate subsidies for excessive pay and restore fairness to our tax system. For too long, ordinary Americans have been footing the corporate bill.

X Chuck Collins and Sarah Anderson are co-authors of the report “Executive Excess 2008: How Average Taxpayers Subsidize Runaway Pay,” published by the Institute for Policy Studies and United for a Fair Economy. The writers wrote this for Progressive Media Project, a source of liberal commentary on domestic and international issues; it is affiliated with The Progressive magazine. Distributed by McClatchy-Tribune Information Services

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