Fact of the Day: Executive Compensation Is A Corporate Tax Deduction – Yes, That’s Really A Thing

Obviously I’ve had my head buried in the sand, because I was totally unaware that corporations can deduct executive pay from their federal income taxes. So what this means is, average tax payers are subsidizing a tax deduction for some of the richest corporations on the planet. And that might be fine if it was a tax deduction meant to spur something for the good of society. But no, it’s just a tax deduction that helps wealthy fucks pay other wealthy fucks large sums of money. — Robert Reich explains it with a lot more restraint than I.

Robert Reich — Almost everyone knows CEO pay is out of control. It surged 16 percent at big companies last year, and the typical CEO raked in $15.1 million, according to the New York Times.

Meanwhile, the median wage continued to drop, adjusted for inflation.

What’s less well-known is that you and I and other taxpayers are subsidizing this sky-high executive compensation. That’s because corporations deduct it from their income taxes, causing the rest of us to pay more in taxes to make up the difference.

There is a limit of $1 million for this deduction, that is, when not tied to performance-based compensation.

Economic Policy Institute — Section 162(m) of the Internal Revenue Code, adopted in 1993 to discourage excessive executive pay, limits the deduction for executive compensation at publicly-traded corporations to $1 million in compensation per covered executive. An exception to the provision, however, allows corporations to deduct qualified performance-based compensation. This exception has a major weakness: While it requires that shareholders approve the performance-based compensation to preserve deductibility, corporations are only required to provide shareholders with general information. Thus, shareholders are asked to, and usually do, approve compensation plans without knowing the potential payouts from the plans or whether the performance conditions are challenging.

So what does this cushy tax deduction for America’s elites cost the rest of us?

Economic Policy Institute — [T]ax-deductible executive compensation cost the federal treasury $30.4 billion over the years 2007–2010; $16.6 billion from performance-based compensation and $13.8 billion from other forms of compensation such as bonuses and salary.

Remember, that was during the Great Recession years. How much economic stimulus, health care, and education could we have bought with that $30 billion? But the Republican talking point on this issue is probably that this tax deduction IS a form of economic stimulus. And of course it is — if you take your trickle down economics with a side order of fairy tales and balloons. Who doesn’t like balloons?

Balloons at the SF Ferry Building - photo by Braden Kowitz

photo by Braden Kowitz

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