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A Dubious Study on CEO Pay and Corporate Taxes

August 20, 2012 J


A new study from progressive group Institute for Policy Studies says 26 large  U.S. companies paid their chief executives on average $20.4 million — more than  the companies themselves paid in federal taxes.

Lots of question marks over this one, as the study is loaded with dubious assumptions that will add to the pots and kettles rattling around in the beltway echo chamber about government spending and taxation.

First, I’m all for a much more transparent, flatter tax code. I’ve testified  before Congress about tax and IRS reform, and covered the IRS and taxes for a  long time. A bigger government means a bigger IRS, and that’s what is at  issue.

It’s all part of the national conversation about what the president said  recently to small businesses and entrepreneurs: “You didn’t build that.”

Yes, you did — U.S. taxpayers working in a U.S. capitalist system pay for  roads and bridges. Not the government. And yes, the White House and Congress,  you did build that $15 trillion deficit which taxpayers have to pay for. The  government works for us, we do not work for the government.

Getting back to the study, it does bring up an interesting debate about the  proper level of corporate taxation in the U.S, with the top U.S. 39.3% combined  federal and state rate the highest in the world, beating Japan, Canada, France  and Switzerland.

True, that rate erodes down to an average effective rate of 12.1%, due to  loopholes, because the U.S. tax system really is a Congressional pork barrel.  And yes, the issue is companies don’t pay taxes — they pass it along to  workers, shareholders and customers.

But let’s get back to the study, here are some details.

The study says the 26 companies, including Abbott Laboratories (ABT:  65.81, -0.11, -0.17%), AT&T (T:  36.94, -0.23, -0.62%), Boeing (BA:  73.98, +0.07, +0.09%) and Citigroup (C:  29.76, +0.73, +2.51%), paid little or no federal taxes on average. It  says: “On average, the 26 firms had more than $1 billion in U.S. pre-tax income  but still received net tax benefits that averaged $163 million,” meaning, tax  refunds.

Citigroup CEO Vikram Pandit gets taken to task for bringing home $14.9  million in compensation, while the study claims the bank got a $144 million tax  refund last year. It also cites Robert Benmosche of AIG (AIG:  34.55, -0.25, -0.72%), who received $13.98 million in compensation while  AIG reaped $208 million in benefits.

Citigroup and AIG were among the worst bailout basket cases this country has  ever seen. The companies were failed enterprises, and were among the first to  run with their tin cups to the U.S. government, getting lots of bailout dough.  Citigroup has received sizable government help about three times since the ‘80s.

But here’s the problem with the study: U.S. companies don’t fully or clearly  disclose their federal tax bills in filings with the Securities and Exchange  Commission. They simply don’t have to.

Which is why Boeing is now saying the company’s federal tax bill amounted to  $1.3 billion last year, including deferred tax, not a net credit of $605 million  as the think tank’s study claims. Also, CEOs do not have to disclose their  tax bills, like all Americans.

So given that, it’s odd to read this statement in the study when the authors  admit the info is not there to back this claim up: “CEOs and their corporations  are expending considerably more energy on avoiding taxes than perhaps ever  before — at a time when the federal government desperately needs more revenue  to maintain basic services for the American people.”

Instead, the study is based on lots of math and estimates based on dubious  assumptions.

There are a number of omissions in this study. Set aside the dubious, apples  to watermelons comparison between CEO pay and corporate tax bills. And the fact  that these companies employ millions of workers, keeping them off the  taxpayer-funded government dole — workers who then pay federal taxes.

The study didn’t include what the companies pay in state, local and foreign  taxes.Not even any estimates offered here.

Why not?

It argues: “Our report comes at a time when there is heightened focus on the  U.S. government’s fiscal situation,” with “massive cuts” underway, which will  also hurt businesses.

It adds: “Our intent is to call into question whether corporations are paying  their fair share toward the cost of national government.”

In other words, the authors only want to talk about companies paying their  fair share to the federal government, given the threat of cuts to federal  government spending. This when the federal government has given billions of  dollars in federal taxpayer money to U.S. states and localities to spend, in  stimulus and health reform money. Not to mention foreign aid, but that’s for  another day.

The study’s authors admit they also didn’t count what companies owe in  deferred taxes, the sum companies will pay but have deferred to future years due  to things like depreciation of assets.

The authors argue that deferred taxes “can be put off indefinitely,” but  again, an assumption — they don’t have the company-to-company details.

Also, in arguing for not including deferred taxes, the study says “taxes on  funds held offshore do not become due until those funds are brought” onshore.

A fair point, but still, an assumption, because there is no detail on the  dollar amounts each company sheltered. The study admits that, and it’s rational  to agree when it says: “There is obviously an enormous public appetite for more  and clearer information on what corporations actually pay in taxes each year,  and not just in this country, but in all of the world’s taxing jurisdictions.  For instance, it would be informative to know what share of profits and taxes  are being paid in places like the Cayman Islands or Luxembourg.”

The study notes that 26 companies have a combined 537 subsidiaries in  tax-haven countries. And the study criticizes government help in the form of  tax credits.

For instance, Boeing now says it lowered its taxes partly by using a popular  tax credit for research and development—and yet it says that helped the company  hire 11,000 people in the  U.S. last year, a difficult point for the  study’s authors to debate.

Because again, these workers then pay U.S. taxes.

“Boeing supports a simpler, more competitive tax code,” the company says in a  statement. “At the same time, we have put the R&D tax credit to exactly the  use it was designed — creating     U.S. jobs in a  high-value, advanced technology industry.”

However, the Institute for Policy Studies argues Boeing would have spent the  money anyway on R&D without the credit. The study also takes to task  performance-pay deductions for things like stock options, which companies use as  compensation, but then deduct on their corporate tax returns.

However, the CEOs and other execs or workers who get stock options must pay  federal taxes on the gains on those options, something not cited in the  study.

The broad focus is this: companies must pay their fair share to a U.S.  government that has spent the equivalent of the economies of Germany and South  Korea since 2009, with net job losses.

Capitalism doesn’t “put y’all in chains.” It opens doors to bold new  companies, such as these small businesses launched during economic downturns  that became U.S. powerhouses: Procter & Gamble (PG:  66.74, -0.26, -0.39%), General Electric (GE:  20.91, -0.09, -0.43%), International Business Machines (IBM:  200.89, -0.33, -0.16%), United Technologies (UTX:  80.18, -0.19, -0.24%), Hewlett-Packard (HPQ:  20.03, +0.51, +2.61%), FedEx (FDX:  89.53, -0.47, -0.52%), Apple (AAPL:  661.15, +13.04, +2.01%), Oracle (ORCL:  32.00, -0.20, -0.62%) and Microsoft (MSFT:  30.76, -0.14, -0.46%).

Read more: http://www.foxbusiness.com/industries/2012/08/16/dubious-study-on-ceo-pay-and-corporate-taxes/#ixzz246huRrUm

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