CEOs Pushing Austerity Economics

Thanks to a “performance pay” tax loophole, large corporations in the United States today are routinely deducting enormous executive payouts from their income taxes. In effect, these companies are exploiting the U.S. tax code to send taxpayers the bill for the huge rewards they’re doling out to their top executives.

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During the three-year period 2009-2011, the 90 publicly held corporate members of the austerity-focused “Fix the Debt” lobby group shoveled out $6.3 billion in pay to their CEOs and next three highest-paid executives.

These 90 Fix the Debt member firms raked in at least $953 million — and as much as $1.6 billion — from the “performance pay” loophole between 2009-2011. The exact full value of corporate windfalls from this loophole will remain impossible to compute until we have more complete mandated disclosure for executive compensation.

America’s top CEOs are pocketing massive taxpayer subsidies at the same time they’re pushing austerity cutbacks in government programs that benefit ordinary citizens.

Top executives at these same Fix the Debt companies are aggressively advocating cuts to government programs that benefit the ordinary American taxpayers subsidizing their compensation. Many of these executives have also added to America’s debt and deficit by using tax havens and other accounting tricks to have their corporations avoid paying their fair tax share.

Health insurance giant UnitedHealth Group enjoyed the biggest taxpayer subsidy for its CEO pay largesse. The nation’s largest HMO paid CEO Stephen Hemsley $199 million in total compensation between 2009 and 2011. Of this, at least $194 million went for fully deductible “performance pay.” That works out to a $68 million taxpayer subsidy to UnitedHealth Group – just for one individual CEO’s pay. A just-released proxy reveals that Hemsley pocketed another $28 million in “performance pay” in 2012, which computes into a tax break for UnitedHealth of nearly $10 million.

Discovery Communications stood next in line for a government handout. Between 2009 and 2011, CEO David Zaslav pocketed $114 million, $105 million of this in exercised stock options and other fully deductible “performance pay.” That translates into a $37 million taxpayer subsidy for Discovery and its lavish executive pay policies. In 2012, Zaslav hauled in enough additional “performance pay” to generate a tax break worth $9 million.

Even big losers win with the “performance pay” loophole. Gambling titan Caesars Entertainment has hemorrhaged money in recent years, driving CEO Gary Loveman’s stock options underwater. Loveman managed, even so, to take home $9.6 million in cash bonuses between 2009-2011, a windfall that’s generating taxpayer subsidies the firm can cash in to lower its taxes over years to come.

If Fix the Debt CEOs were serious about addressing our nation’s fiscal challenges, they would push for greater fairness in the tax code, including the elimination of entitlement programs benefiting CEOs like the “performance pay” loophole.

Rep. Barbara Lee (D-Calif.) has introduced legislation, the Income Equity Act (H.R. 199), that would do just that. The bill would deny all firms tax deductions on any executive pay that runs over 25 times the pay of a firm’s lowest-paid employee or $500,000, whichever is higher.

This approach does not set a ceiling on, or dictate in any way, how much corporations can pay their executives. The bill would instead place a cap on the amount of pay that corporations can deduct from their taxes. Corporations could still freely pay their executives outlandishly large sums. But the federal government — and average American taxpayers — would no longer pick up the tab.

The Income Equity Act could have an important impact on lower-level workers as well. By including the option of limiting deductibility to no more than 25 times the pay of the lowest-paid employee, Rep. Lee’s bill would encourage corporations to raise pay at the bottom of the corporate pay ladder. The greater the pay for a company’s lowest-paid worker, the higher the tax-deductible pay for the company’s highest-paid executives.

The bill would build on precedents in the TARP and the Affordable Care Act that set a $500,000 deductibility cap on pay for bailout recipients and health insurance firms. The TARP restrictions applied to financial firms only until they repaid their bailout funds. And yet, as noted above, even this temporary elimination of the performance pay loophole resulted in significant taxpayer savings.

The deductibility caps on health insurance firms, designed to discourage these corporations from using profits from premiums to overcompensate their executives, go into effect this year. With this cap in effect, taxpayers won’t have to worry so much about their hard-earned dollars going to subsidize fat paychecks for CEOs like Stephen Hemsley of UnitedHealth. But taxpayers may want to wonder why — at a time of scarce government resources — their tax dollars are subsidizing fat paychecks at any American corporate giant.