Paying for the CEO Gravy Train
Chuck Sheketoff
If your Labor Day barbeque is still working its way through your arteries, a new report on the impacts of CEO pay might make your heart seize up. Executive Excess 2008 details how American workers subsidize the gluttonous pay for CEOs via tax loopholes.
How gluttonous? S&P 500 CEOs last year raked in an average of $10.5 million, 344 times the pay of typical American workers.
Your failing company nearly brought the U.S. economy to its knees and required a government bailout to avoid a fiscal calamity? No problem. You still take home a cool $13.4 million (Fannie Mae CEO Daniel Mudd). Or even better, $19.8 million (Freddie Mac CEO Richard Syron).
But that was pocket change compared to what the top 50 hedge and private equity fund managers averaged: $588 million, more than 19,000 times as much as the typical U.S. worker earned.
A variety of tax and accounting loopholes have resulted in taxpayers subsidizing the CEO pay by more than $20 billion per year at the federal level. As the report notes, that $20 billion in federal tax subsidies for America’s most powerful is more than double what the federal government spent last year educating America’s most vulnerable — children with disabilities.
And when CEO excessive pay schemes cost us federal tax dollars, they cost us state tax dollars, as well. Oregonians have indeed been stuck with some of the bill.
The loopholes that foster extravagant CEO pay are not the sole reasons why so many Oregon corporations now pay only a token amount in income taxes — other tax loopholes are also at play. Still, it’s clear that CEOs are having a feast at everyone else’s expense.
Until we derail the CEO gravy train and once again require corporations to pay their fair share in federal and state income taxes on their profits, there will be little to feel good about on Labor Day.
Chuck Sheketoff is the executive director of the Oregon Center for Public Policy. You can sign up to receive email notification of OCPP materials at www.ocpp.org
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11:50 a.m.
Sep 3, '08
Seems to me that there's no executive management job in this country that's tougher than the President of the United States.
The president makes $400,000 a year.
Now, if there's some company that wants to pay their executives more than that - fine by me. But anything above $400,000 shouldn't be considered a business expense, deductible on their taxes.
Because anything higher than what the President makes isn't compensation for services rendered, it's a gift.
Sep 3, '08
The President costs me (and my children, grandchildren, great grandchildren, etc. etc.) money with his spendthrift policies in Iraq and elsewhere. Hedge fund managers make me money by generating wealth for their investors, owners, etc. I agree that there should be an upper limit on tax deductible compensation, but comparing the Pres to Wall Street is an unfortunate comparison. If a mutual fund or hedge fund was led by an incompetent bimbo like George II, he would be fired in the first five minutes. And then we could move on to fire the people who hired him in the first place.
2:07 p.m.
Sep 3, '08
Really? Because there seem to be a lot of incompetent mutual and hedge fund managers out there who've managed to skate for years without any consequences.
3:26 p.m.
Sep 3, '08
OK. Executive pay is outrageous. Nevertheless, is $10.5 million the mean? If so, we are talking $5 billion, which isn't chump change, but doesn't count for much when we talk US tax policy. The US Fortune 500 had a taxable income in 2006 of about $600 billion and paid about $150 billion in US corporate income taxes. (It is even less meaningful when we talk OR, since we have only one HQd in the state).
Big corporations aren't the main reason for the decline in corporate tax revenues. They report a higher proportion of the total corporate incomes and pay a higher proportion of corporate taxes now than they did in 1986, despite the fact that their share of total gross revenue is significantly lower. The real change is in the behavior of businesses with fewer than 100 employees and S corps, professional corps, partnerships and the like, which report lower taxable incomes now because their owners now find it advantageous to take their firms' earnings as personal income (wages, bonuses, etc.). Moreover, for the last 25 years or so, those firms have been growing faster than the giants.
This is also one reason for the apparent jump in income inequality after 1986, which is seen when we look at taxable income, but not so much when we look at the distribution of consumption or wealth.
Sep 3, '08
This is also one reason for the apparent jump in income inequality after 1986, which is seen when we look at taxable income, but not so much when we look at the distribution of consumption or wealth.
It's not surprising that consumption inequality is not as great as the growth in income inequality (there's nothing "apparent" about it). It's hard to spend gazillions of money, so you save it. That's what rich folks do.
And last I saw, the top 1% owned half the finacial assets in the country -- an indication that wealth inequality is even more skewed than income inequality.
8:09 a.m.
Sep 8, '08
I didn't mean to imply that the distribution of wealth was more equal than the distribution of income, merely that we don't see the same kind of changes in its distribution that that we see in taxable income after the mid-80s.
It is also somewhat misleading to conflate the distribution of financial assets (stocks & bonds) held by individuals with the distribution of wealth (net assets) of individuals. Although both are unequally distributed, the former is much more unequal than the latter. Indeed, according to the Luxembourg wealth study, the distribution of wealth is less unequal in the US than in countries like Sweden or Denmark.
Of course, that conclusion is hostage to the valuation of financial assets, which tend to be more volatile than other assets.