Yves here. This post gives a vivid example of how easily large companies run roughshod over the general public. But taxing the rich (and corporate executives are a subset) has always polled very well. So the failure to address these glaring inequities has nothing to do with what voters what, but with what those more equal than other voters want. It seems that nothing short of elite-interest-threatening disruptions could change that. But that seems unlikely given how complacent and/or beaten down most Americans are, combined with pervasive surveillance and serious employment costs of being arrested.
The article implicitly endorses the idea that the Federal government needs to tax or borrow in order to spend. For a currency issuer like the US, taxes serve to force its use, to drain excess demand, to redistribute income, and to provide incentives and disincentives. The ever-widening gap between those at the top and everyone else looks like an intended outcome.
By Sarah Anderson, who directs the Global Economy Project of the Institute for Policy Studies and is a co-editor of Inequality.org; William Rice, a writer and consultant in Washington; and Zachary Tashman, a senior research and policy associate at Americans for Tax Fairness. Originally published at Common Dreams
Until this self-reinforcing cycle is broken, we’ll have a corporate tax and compensation system that works for top executives—and no one else.
In his State of the Union address, President Joe Biden called out “massive executive pay” and vowed to “make big corporations and the very wealthy finally pay their share” of taxes.
Corporate tax dodging and CEO pay have gotten so out of control that many major U.S. companies are paying their top executives more than they’re paying Uncle Sam.
Tesla is perhaps the most dramatic example. Over the period 2018-2022, the electric car maker raked in $4.4 billion in profits but paid no federal income taxes. Meanwhile, Tesla CEO Elon Musk became one of the world’s richest men.
When it comes to fleecing taxpayers while overpaying executives, Tesla is hardly alone. A new report we co-authored for the Institute for Policy Studies and Americans for Tax Fairness analyzes executive pay data for some of the country’s most notorious corporate tax dodgers.
What did we find? In addition to Tesla, 34 other large and profitable U.S. firms—including household names like Ford, Netflix, and T-Mobile—paid less in federal income taxes between 2018 and 2022 than they paid their top five executives.
Another 29 profitable corporations paid their top executives more than they paid Uncle Sam in at least two of the five years of the study period.
One company on our list stands out for the infamous role its executives played in the 2008 financial crisis: American International Group. Back then, the insurance giant ignited a firestorm by pocketing a $180 billion taxpayer bailout and then announcing plans to hand out $165 million in bonuses to the very same executives responsible for pushing the company—and the nation—to the brink of collapse.
Today, AIG is playing the same greedy game of overpaying its top brass and sticking taxpayers with the bill. Between 2018 and 2022, the company paid its top five executives more than it paid in federal income taxes, despite collecting $17.7 billion in U.S. profits. In 2022, CEO Peter Zaffino alone made $75 million.
Lavish executive compensation packages and skimpy corporate tax payments are not unrelated. Executives have a huge personal incentive to hire armies of lobbyists to push for corporate tax cuts because the windfalls from these cuts often wind up in their own pockets.
The 2017 Republican tax law slashed the corporate tax rate from 35% to 21% and failed to close loopholes that whittle down IRS bills even further. Many large, profitable corporations ended up paying no federal taxes at all.
Corporations took the savings from those tax cuts and spent a record-breaking $1 trillion on stock buybacks, a financial maneuver that artificially inflates the value of executives’ stock-based pay.
Wealthy executives became even wealthier while the nation lost billions of dollars in corporate revenue that could have been used to lower costs and improve services for ordinary people. Until this self-reinforcing cycle is broken, we’ll have a corporate tax and compensation system that works for top executives—and no one else.
What can we do to break this cycle?
Congress can tackle the entwined problems of inadequate corporate tax payments and excess executive pay on several fronts. Raising the corporate tax rate to 28% (just halfway back to Obama-era levels) would generate $1.3 trillion in new revenue over the next decade.
Congress must also close loopholes and eliminate wasteful tax breaks, for instance by removing the incentives for American firms to shift profits and production offshore.
Policymakers also have a wealth of tools to curb excessive executive pay, from tax and contracting reforms to stronger regulations to rein in stock buybacks and banker bonuses.
We know we need change when corporations are rewarding a handful of top executives more than they are contributing to the cost of public services needed for our economy to thrive.
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A link with an interesting article, a sort of Sauline conversion:
https://www.imf.org/en/Publications/fandd/issues/2024/03/Symposium-Rethinking-Economics-Angus-Deaton
(A word from) Thomas Piketty : « Every human society must justify its inequalities : Reasons must be found because, without them, the whole political and social edifice is in danger of collapsing.”
It seems that some are starting to see the light.
This could be the basis for an interesting Corporate Alternative Minimum Tax!
Vanity, all is vanity. So only two cheers for increasing corporate taxes. What ultimately needs to be increased are !personal! income tax rates (including, of course, inheritance, step-up, capital gains, carried interest, etc, etc).
Increasing corporate rates may be desirable, as Yves points out, for ancillary purposes like encouraging domestic investment, but it will be like throwing an ice cube at the lithium bonfire of vanity raging in the C suites.
As Brandeis said, “We can have democracy in this country, or we can have great wealth concentrated in the hands of a few, but we can’t have both.”
We should keep first things first.
We really need to drum up support to end stock buybacks.
How they are legal is beyond me – literally stock price manipulation.
IIRC, they were illegal until Reagan made them legal?
Absolutely true-
‘For most of the 20th century, stock buybacks were deemed illegal because they were thought to be a form of stock market manipulation. But since 1982, when they were essentially legalized by the SEC, buybacks have become perhaps the most popular financial engineering tool in the C-Suite tool shed. And it’s obvious why Wall Street loves them: Buying back company stock can inflate a company’s share price and boost its earnings per share — metrics that often guide lucrative executive bonuses. As Reuters wrote recently, “Stock buybacks enrich the bosses even when business sags.”’
https://www.esquire.com/news-politics/politics/a60097096/senator-elizabeth-warren-protests-stock-buybacks/
Stock buybacks are a major reason why US corporations as a whole have cut back on research and development and are no longer as innovative as foreign countries.
Amen dear Rev.
It is not clear that banning buybacks changes anything. A company either buy backs shares, which increases an equity holder’s equity in the company tax free, or they pay dividends to the equity holder, who incurs a tax, but can then either repurchase shares on their own or use the money elsewhere. Buy backs can be used to increase stock price to help executives game option grants which may be undesirable. Its not clear to me that companies will spend more on R&D versus just pay higher dividends. Banning buybacks might increase the annual tax haul, but no clear causal chain to an increase in R & D. The drop in R & D probably has more to do with the realization that return on equity is much higher for business lines based on financial chicanery than it is if you produce a real product or a real service, the same way it is for kidnapping and robbery versus drug dealing.
Your last sentence sums up well the primary reason for not allowing stock buybacks.
I am sorry to sound downbeat but looking to Congress and our present system of electoral politics and governance not to mention our out of date hallowed Constitution is not going to get much results. I think the very evil conglomeration of factors that Bill Clinton let loose in the 1990s was just too much for the system. Bubba more or less cut the Gordian knot that seemingly held together the fraying middle class American dream. Unleashing Wall Street from Glass-Steagall, allowing CEO pay in stocks, zero anti-trust enforcement were all ticking time bombs. All this was done while attention was drawn away by the technology break through of the Internet which was in turn enabled by the rapid rise of semiconductor advances and Cisco. The dotcom bubble and the replacement of pensions with 401K further deflected attention from the advent of the H1-B visa worker replacement of long tenured tech workers in Silicon Valley. I still remember those days clearly. We all whooped and hollered in our cubicles as Netscape soared in its IPO while just a few days previously a photo in the San Jose Mercury News showed protesting laid off workers at the HP campus. HP was laying workers off on one side while staffing the positions with H1-B imports from India. I had two friends who came over to work from India, one in HP and the other in Sun. A few years later the outsourcing boom started in earnest. Too much damage has been done in too short a time. The Keynesian Defense spending on the MIC is keeping things under wraps for now. We have left a very large and heart breaking restoration job for our children. Rebuilding America is not going to be easy and is probably going to need watering that hoary old tree of Liberty with the transfusions that old Tom Jeff talked about.
It’s his money, BUT, I just saw Bezos gave $100M to a General and to Eva Langoria, no strings attached.
First thought– what if that had gone into federal programs for kids, hunger, after school programs, folks with chronic disease, etc. And yes, there is federal bloat and mal-spending, but so is there the same on the corporate / private sector side.
Not executive pay per se, but another example of a system on the blink.
For better or worse at least Bezo’s ex is giving it away in large chunks.
One of many hits
https://apnews.com/article/mackenzie-scott-donations-962490e92faab36492b7481205ec7249