Shared sacrifice - except for CEOs

The hypocrisy over deficits and calls for shared sacrifice can be illustrated with one simple statistic.

According to the Institute for Policy Studies, 25 of the most-well-paid US chief executives got higher compensation than their companies paid in federal taxes. There's a class war on, as Warren Buffett has noted, and his class is winning it.

The drive for austerity, with its attendant manufactured crises, carries with it a host of mini-outrages making this point. Americans learned after the fiscal cliff negotiations ended that the final agreement, ostensibly to pass "tax hikes for the wealthy", extended huge corporate handouts.

These included special breaks for NASCAR, help for Hollywood movie studios, US$3 billion ($3.6 billion) a year for General Electric, support for mining and railroad companies, and even a push for electric scooters.

Outrage over this story flamed everywhere, from the floor of the House of Representatives to cable news networks, including ESPN. The anger at these corporate subsidies was justified because breaks like these are a symbol of a budget process designed to shift money and power to people who already have too much of it.

The real story of the fiscal cliff negotiations, and the coming debt ceiling debate, are corporate tax cuts and the CEOs who love them. There are many US corporations that don't pay taxes. They then pass along some of that increased profit to their CEOs, who also shelter their income from the Internal Revenue Service. It's a veritable circle of life.

As David Cay Johnston has shown recently in his excellent book, The Fine Print, the middle class is at a double disadvantage. One, we actually have to pay taxes every year on our income. Two, we have to deal with a frightening overly complex tax code.

Let's start with the corporations who don't pay taxes. AT&T didn't pay any in 2011. GE and The New York Times got into a fight over an article about whether the sprawling electronics and banking conglomerate didn't pay any taxes, or paid far too little. Bank of America, which got one of the biggest federal bailouts, also got a billion-dollar refund in 2010.

Meanwhile, the Treasury Department quietly gave the insurance giant American International Group, which received the biggest government bailout, a multi-billion-dollar tax break to make its bailout numbers look better. The company is now running a massive TV ad campaign trumpeting that it not only paid back the bailout money, but the nation made a profit.

Politicians often argue that closing corporate tax loopholes is necessary, but doing so won't help raise anywhere near the amount necessary to make a dent in the deficit. But consider that if corporate revenue were raised to the proportion of federal taxes they made up in 1950, we'd get rid of about half of our trillion-dollar deficit.

The lack of tax revenue from corporations that benefit from the US government's court systems, legal protections, military protection and infrastructure is plenty cause for outrage. But the scam is actually deeper than a few corporate tax breaks.

Corporate CEOs and officers often don't pay taxes on much of their income. But wait - the fiscal cliff deal was touted as a tax hike on the very wealthy, a change in the tax code that Annie Lowrey of the Times wrote would make the tax code more progressive than it has been since the Carter years.

Surely, if CEOs get large salaries, then they'd have to pay higher taxes under the new fiscal cliff deal, right? Actually, no.

"About 79 per cent of chief executive officers at Fortune 100 companies," according to Bloomberg, "were offered so-called non-qualified deferred compensation plans", which allow them to "defer an unlimited amount of their salaries or bonuses on a pre-tax basis until a future date".

Not only do these plans let high-paid business executives defer taxes for years, they allow them to work in a high-tax state, such as New York, but pay taxes where they retire - in a state like Florida, for example, that has no income taxes.

This means that the parade of CEOs flowing through the White House in November and December to show support for the fiscal cliff deal weren't supporting a deal that raised their taxes, thank you very much.

For example, Douglas R Oberhelman, chairman and CEO of Caterpillar, ostensibly a proponent of raising taxes on the wealthy in the fiscal cliff deal, got US$4m in deferred compensation last year. Nice work, if you can get it.

The other problem these masters of the universe avoid - and middle-class US taxpayers do not - is the matter of filing taxes. The system essentially imposes a complexity tax on those of us unable to afford expertise, and a complexity subsidy for those who can. The tax preparation industry helps the extraordinarily wealthy become fantastically wealthy by trading tips in magazines such as the Journal of Deferred Compensation: Nonqualified Plans and Executive Compensation. This one you definitely read for the articles.

Meanwhile, most of us confront a tax code that is frightening, and have overpriced software or predatory lending tax prep services as our allies. This is unnecessary. Governments around the world, as well as in a trial project in California, now do their taxes for their citizens. But Intuit lobbied to kneecap the IRS from doing this, from actually making our lives easier, because it may have threatened their ability to sell us software.

In other words, not only does the middle class pay more income proportionally than the corporate elite - and not only do the wealthy have perhaps the world's most amoral nerds finding ways of making sure they pay even less in taxes than they already do - but the act of filing taxes is annoying and stressful when it shouldn't be. The complexity of the system and the lack of actual aid to navigate it has consequences beyond taxes.

Unlike the CEO class, who appear never to have met a handout they couldn't gorge on, the middle class doesn't claim government benefits it's due - US$108 billion of unemployment insurance payouts went unclaimed in 2009.

We hate our tax system - and we should. We were right to be angry at the special breaks in the fiscal cliff deal. As it turns out, many corporate spokespeople were caught flat-footed by the revelations of corporate favours in the deal.

Marcus Jadotte of NASCAR said that the deal offered "greater certainty" for race-track owners - as if the racing industry depends on seven-year-depreciation schedules.

Kate Bedingfield, a former Obama administration official and current spokesman for the Motion Picture Association of America (love that revolving door), justified the tax credits by pointing to movies it helped finance, like Transformers: Dark Side of the Moon. It's unclear how an apparent need for more overproduced Michael Bay movies with incoherent plots that still become huge blockbusters has become a talking point for corporate tax breaks. But it probably makes as much sense as any other argument they could offer.

Basically, taxpayers are subsidising companies for the cost of doing business. A Transformers movie should be able to make money without tax breaks. Mining companies do not need tax breaks to buy safety equipment and train their workers in safety procedures - they need to be told to not kill their workers and to be held accountable if they do. A big chunk of GE's profits shouldn't depend on its ability to manipulate the tax code.

And CEOs shouldn't get their income-tax-free compensation linked to profits enhanced by rebates from the IRS. Behind poor tax policies are not just corrupt practices like the revolving door - though there is plenty of that. The culprit is an ideology that declares corporations and the wealthy to be "job creators" that must be handled with delicate care and feeding, lest they refuse to create any jobs.


This is absurd. Hollywood has managed to make terrible, profitable movies for 100 years. Ronald Reagan, who led the charge to let businesses get tax favors, starred in many of them. GE managed to make money for 100 years without financial engineering. NASCAR has a great product; it doesn't need taxpayer help.

Or, to put it in terms the corporate world might understand, we should not extend to it the soft bigotry of low expectations. We must force our downtrodden corporations to stand on their own two feet and pull themselves up by their bootstraps.

In 1950, corporate income taxes provided US$1 in every US$4 of federal tax revenue, and slightly less than half of state tax revenue. By 2012, corporate taxes provided about US$1 in every US$10 of federal tax revenue, and about US$1 in US$8 of state tax revenue. Under that system, the nation paid off the massive public debt we incurred during World War II.

If confronting the deficit is a major concern concern, the path is clear: Make corporations pay taxes. And make sure their CEOs have to live in the same world