Fix the Debt: Fiscal Responsibility for Thee

ThinkProgress links to a new report by the Institute for Policy Studies and the Campaign for America’s Future about a group called Fix the Debt, which is made up of the CEOs of many large and powerful corporations. While demanding fiscal responsibility, they all make far more money both personally and for their companies because of tax breaks on their own compensation:

– UnitedHealth Group: This company was at the top of the list, deducting at least $194 million of its total $199 million compensation for CEO Stephen Hemsley during that time period. The report calculates that this works out to a $68 million taxpayer subsidy to UnitedHealth, plus another $10 million tax break for Hemsley’s $28 million performance pay in 2012.

– Discovery Communications: This company came in second, deducting $105 million of a total compensation package of $114 million for CEO David Zaslav from 2009 to 2011. That comes to a $37 million taxpayer subsidy. It got another $9 million tax break for his performance pay in 2012.

– Caesars Entertainment: Even though this company has been losing money in recent years, CEO Gary Loveman made $9.6 million in cash bonuses during that time.

And ThinkProgress notes:

During that three-year period, CEOs and the next three top executives at each of the 90 Fix the Debt corporations were paid a total of $6.3 billion, 75 percent of which was in fully deductible performance pay, equaling $2.7 billion. Depending on how everything was calculated (which is hard to know with current disclosure rules), that comes to about $1.5 million in taxpayer subsidy per executive or $18 million per company.

The group has previously pushed for tax reform that would result in even bigger windfalls for the corporations they represent, potentially netting them $134 billion.

In effect, taxpayers are subsidizing their pay to the tune of about a billion dollars a year. I say we start there.

17 comments on this post.
  1. slc1:

    Do as I say not as I do.

  2. Artor:

    What is the point of taxes when a guy like me, barely scraping by, keeping a roof over my head & feeding my kid, has to scrape up 20% or more of my hard-earned money to pay for killing people around the planet, while a company making millions pays next to nothing? In some cases, on the other side of nothing! Are we trying to fund the operations of a first-world country, or are we simply running a machine to squeeze the lifeblood out of the working class to feed rich bastards and buy them boats, houses, and islands to put them on?

  3. jws1:

    This “Fix the Debt” group was sending me emails to whip up financial and political support for their fiscal policy proposals. The emails stopped when I emailed back one time several weeks ago (not long after the 10th anniversary of the invasion of Iraq), advising them to refrain from $6 trillion wars of choice.

  4. matty1:

    I’m a little confused do they get tax breaks on personal income tax or do you mean the company counts their wages as expenditure thereby reducing taxable profit? If the later I have to say this doesn’t sound unreasonable assuming the same offsetting applies to all salaries.

  5. Ben P:

    What is the point of taxes when a guy like me, barely scraping by, keeping a roof over my head & feeding my kid, has to scrape up 20% or more of my hard-earned money to pay for killing people around the planet, while a company making millions pays next to nothing? In some cases, on the other side of nothing! Are we trying to fund the operations of a first-world country, or are we simply running a machine to squeeze the lifeblood out of the working class to feed rich bastards and buy them boats, houses, and islands to put them on?

    Notwithstanding BS about corporations being people, Corporate taxation is different, and for very good reason.

    Corporations, indeed businesses of any kind, ragardless of whether they have a corporate form or not, are taxed on their net profits.

    That is, suppose I run a food cart. I go out all day and sell 100 meals, making a gross profit of $1000. However, the cost of my ingredients was $700, renting my space, my cart, and other expenses make up $200. So at the end of the day, I made $100 profit.

    Would it make any sense to tax them on $1000? That’s not any more their income than your take home is your full income.

    In a case like this, you’d use a pass-through business and just take the profits as personal income, so you don’t pay both corporate and income taxes. But let’s go a little further.

    One step further. I incorporate my business with the food cart and hire one employee. I pay him $50 a day to run the food cart. Now my profits from the business are $50 a day, that $50 I pay the employee is just another business expense. He will pay personal income taxes out of that $50 a day, and that $50 a day will accrue to the business.

    The business can be pass through, in which case I’ll just take that $50 as personal income and pay income taxes on it myself, or it can be standard, in which case the business will pay corporate income taxes on that $50 a day, then I’ll get what’s left over as a short term capital gain, subject to capital gains tax.

    Now, one more step. Back to just me owning the food cart, but I incorporate it. I am an employee of my own company, and I pay myself a salary of $100 a day. Now the “corporation” makes no profit at all because it pays all excess funds out to me in the form of a salary. I’ll pay personal income taxes on it, but the corporation won’t pay any taxes because it didn’t make any money.

    When you’re talking about billion dollar multi-national corporations there are, of course, many other issues involved. But this is basic reasoning why you can’t simply just say “corporations should pay their fair share.” Figuring out what that should be is a lot more difficult.

  6. jaybee:

    I read the original article but I was no clearer on what exactly the complaint is, other than excessive CEO compensation. All salaries are deductible by the corporation, aren’t they? The question then shifts to: how much of that personal income is then taxed. Also, I’d hope the shareholders give them some grief about CEOs earning $100M/year.

  7. Modusoperandi:

    jaybee, if Fix the Debt got an article in the newspaper, the headline would read,

    “To save the country we all have to gut Medicaid, Medicare and Social Security”, say well-connected millionaires, enjoying record-high profits and historically low taxes

  8. Artor:

    BenP, I appreciate the complexities of a fair & reasonable tax code, but when a multi-billion dollar corporation pays zero taxes, or even gets more back in subsidies and credits, then something is very, very wrong. I don’t see how my fair share nearly breaks me, while their fair share is next to nothing.

  9. Ben P:

    BenP, I appreciate the complexities of a fair & reasonable tax code, but when a multi-billion dollar corporation pays zero taxes, or even gets more back in subsidies and credits, then something is very, very wrong. I don’t see how my fair share nearly breaks me, while their fair share is next to nothing.

    Well that’s kind of the point though. That multi-billion dollar corporation might well have not made any money that year, in which case it’s not unreasonable that they didn’t pay taxes. It’s difficult to just say “billion dollar corporation therefore taxes”

    Like I said, there are many more complicated reasons, and accounting alchemy that corporations can do that people being taxed on incomes can’t, many of those should be changed, but many of those have plausible justifications too.

  10. bmiller:

    It’s always so convenient and “rational” that all of those “complicated reasons” and “accounting alchemy” and regulations favor the top 1%, no?

  11. baal:

    @ BenP – you do a great job on the explanation but any medium to large corp these days manages their liabilities and income to show essentially zero profit regardless of how the corp is actually doing. This is why business analysis rarely if ever look to the profit line on a balance sheet as a gauge of how a corp is doing. In light of the ratios of CEO to workers pay hitting levels not seen since the gilded age and things like Romney’s total admitted tax burden being under 14% I am comfortable saying they are not doing their fair share.

    FWIW check out Robert Reich. He has a website with easy to understand explainers.

  12. Ben P:

    It’s always so convenient and “rational” that all of those “complicated reasons” and “accounting alchemy” and regulations favor the top 1%, no?

    There are plenty of regulations that are little more than handouts in disguise, but again it’s easy to snark, and very difficult to actually write good policy.

    I’ll give another tax example. One of the major reasons multi-nationals end up paying substantially lower taxes is the way the US government treats overseas profits.

    There is a 35% corporate income tax on profits earned abroad, but (a) companies get credit for taxes they pay in the country of origin, and (b) that tax is not triggered until those profits are brought into the united states.

    I’ll go back to the food cart example. Suppose I have my food cart here, and my cousin has a food cart in Beijing. My business is in the US. I have to pay US corporate income taxes on all profits the business makes.

    My cousin in China is taking renmibi in payment. He’ll probably have to pay chinese income taxes on the profits he makes under Chinese law. But suppose after he pays those taxes, he has a box full of Renmibi sitting in his cart. That money is not in my bank accounts in the US, and hasn’t even been converted into dolalrs. It’s also outside of US jurisdiction, and it would be all but impossible for the US to try to discover what profits have been made by a Chinese operation.

    These are a few of a number of reasons why US tax code was written to say that, as far as US law is concerned, my corporation only “makes” that money in the US, when my cousin sends that money into the US and I convert it into dollars and put it in my accounts. There are good reasons for the rule.

    But the rule is also heavily abused. GE for example, disclosed in 2012 that it has $108 billion in profits that were generated in foreign companies (and foreign taxes have likely been paid on it) but that it has no intention of bringing that money to the US. It’s going to hold onto it and use it to self-finance the expansion of its own foreign businesses. In the US they could deduct that as a business expense, but only if they did it this year. Overseas, they can hold onto it as long as they care to.

    The trick is to write the rule to prevent abuse, without causing a lot more problems than you’re trying to solve, and/or without creating new loopholes for people to exploit.

  13. sundoga:

    In this case, I think we do need to go back to the fifties. When the highest marginal tax rate was 90%.
    And then just eliminate all the exemptions.

  14. Modusoperandi:

    sundoga, that’s too far. First, nobody paid 90%. Second, it’ll never happen. Third, if it did happen, it would be bad. Fourth, some exemptions are necessary, productive and worthwhile.

  15. d.c.wilson:

    Amazing how “fix the debt” translates neatly into “more tax cuts for the wealthy and corporations.”

    How exactly is that going to “fix the debt” again? Oh yeah, that’s right. Trickle on the middle class economics.

  16. wpjoe:

    Corporations can’t have it both ways. If corporations are people, my friend, and can use as much money as they want buy influence with the government, then corporations are people, my friend, and have to pay taxes like the rest of us.

  17. khms:

    There’s a reason some regions have sales tax: doesn’t matter so much if the corporation makes a profit, just so long as it does business. I’ve seen that from the other side, when the business I’m working for was deep in the red, but the government insisted on getting its sales tax, which my boss had much trouble finding the money for.

    Of course, sales tax have another fairness problem: they hit low incomes especially hard.

    Distrust everybody who claims he has a simple solution to curing the tax woes. Every simple solution has a huge list of problems.

    However, I really wish every tax rule had a built-in (and not too long) expiration date – if you want it to continue, you need to reaffirm it when it runs out. That would at least get rid of a lot of cruft in the tax code, and make it easier to understand. Mostly the legislative doesn’t care much about cruft; I want them to pick and choose what to keep, given they aren’t likely to pick and choose what to drop.

    Might work for other areas of the law as well.

Leave a comment

You must be