Senator Elizabeth Warren (D-Mass), Rep. Greg Casar (D-Texas), and 14 other members of Congress recently sent letters to 35 companies that have been paying their top five executives more than they’re paying in federal taxes. The lawmakers are demanding information about these corporations’ tax avoidance practices and lobbying expenditures.
The list of 35 corporations with fat CEO paychecks and meager IRS payments comes from a joint Institute for Policy Studies-Americans for Tax Fairness report. This study reveals detailed data on each company’s profits, tax payments, and executive pay for the years 2018 through 2022. Our findings reveal just how out of control tax dodging and CEO pay have become in Corporate America.
As a whole, the 35 corporations we analyzed forked out $9.5 billion over the study period to their top five executives while their combined federal income tax bills came to a negative $1.8 billion. In other words, rather than paying taxes, these firms — all of them highly profitable — actually received refunds.
Tesla ranks as the most staggering example of excessively paying executives while fleecing taxpayers. Over the period 2018-2022, the electric car maker raked in $4.4 billion in profits but paid no federal income taxes. Meanwhile, CEO Elon Musk became one of the world’s richest men.
T-Mobile has the second-largest executive compensation payout on the tax-dodging list, having doled out $675 million to top leaders over the five-year period. Meanwhile, the telecom company paid zilch in taxes despite raking in nearly $18 billion in profits.
Netflix comes in a close third, with $652 million in executive compensation, nearly three times what the firm paid in federal income tax from 2018 to 2022. Despite more than $15 billion in profits over this five-year period, the streaming giant paid just a 1.6 percent effective income tax rate, a rate likely lower than the vast majority of its subscribers.
As our report points out, lavish executive compensation packages and inadequate corporate tax payments are not unrelated. Business leaders have huge personal incentives for pursuing schemes to lower their company’s IRS bills since this leaves more money to pump up their own paychecks.
Lawmakers are putting the spotlight on corporate tax dodging in the lead-up to the debate that will occur in 2025 as a result of the expiration of key provisions in the 2017 Republican tax law. The slashing of the corporate tax rate from 35% to 21% was a central pillar of that law. And while that cut is not expiring next year, many lawmakers and fair tax advocates are calling for corporate tax rate increases and loophole closures to be on the table so that we can raise the revenue needed for urgent social needs.
In their letters to the tax-dodging companies, the members of Congress requested responses by Oct. 8 to a list of questions regarding federal tax payments each firm would’ve owed if the 2017 Republican tax cuts had not been in effect over the past six years versus their actual payments. The lawmakers also ask about each company’s tax-related lobby expenditures and whether they’ve reported these payouts to shareholders.
While many companies promised to funnel windfalls from the 2017 tax cuts into worker pay and bonuses, average middle class earners did not get any wage increases from the law. Instead, corporations blew much of these gains on stock buybacks, which inflate the value of CEOs’ stock-based pay while siphoning money from worker wages and long-term investment.
Next year’s tax debate creates an important opportunity to reverse the corporate tax cuts in the 2017 law while also discouraging the excessive executive compensation that is stoking our nation’s soaring inequality.
The Democratic Party Platform proposes quadrupling the existing 1% excise tax on stock buybacks. This would help curb a once-illegal maneuver that benefits top executives and shareholders.
Members of Congress have also introduced bills that directly tackle our country’s extreme gaps between CEO and worker pay. The Curtailing Executive Overcompensation (CEO) Act would apply an excise tax designed so that companies with a large CEO-worker pay gap would owe extra taxes — and if they also have extremely high CEO pay, they would owe even more.
A similar bill, the Tax Excessive CEO Pay Act, ties a company’s federal corporate tax rate to the size of the gap between its CEO and median worker pay. Tax penalties would begin at 0.5 percentage points for companies with pay ratios between 50 to 1 and 100 to 1. The highest penalty would apply to companies that pay top executives over 500 times worker pay. A May 2024 poll indicates that tying the CEO-worker pay ratio to corporate tax increases would garner strong support among Americans of every political stripe.
Americans are fed up with corporate executives who are fixated on enriching themselves while shortchanging taxpayers and workers.
Sarah Anderson directs the Global Economy Project and co-edits Inequality.org at the Institute for Policy Studies.
From The Progressive Populist, November 1, 2024
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