Economy & Trade, Headlines, Labour, North America

ECONOMY-US: Activists Target Corporate Chiefs' Tax Subsidies

Abid Aslam

WASHINGTON, Aug 26 2008 (IPS) - U.S. taxpayers shell out 20 billion dollars a year to pad business chiefs' earnings and to prop up the world's most lopsided corporate pay scales, say activists seeking to highlight inequality in this election year.

Various tax and accounting loopholes encourage excessive executive pay and serve to allow company chiefs to pay taxes at lower rates than their employees, the groups Institute for Policy Studies and United for a Fair Economy said on Monday. Taxpayers foot the bill in the form of forgone public revenues, they added in a report.

''It's outrageous that our tax dollars are inflating executive pay cheques,'' said Sarah Anderson, an author of the annual "Executive Excess" report. ''Surely in these troubled economic times we can find better ways to spend our nation's wealth.''

The U.S. government misses out on 10 billion dollars a year in estimated revenues because current rules allow firms paying executives stock options to deduct more than their actual expenses, the report said.

It cited the example of United Health Group, which it said paid its chief executive, William McGuire, nine million stock options. The company claimed a tax deduction of 317.7 million dollars for the compensation even as it issued financial statements suggesting the arrangement had cost it nothing, according to the report, which drew its information from official sources and media reports.

Other loopholes unavailable to ordinary taxpayers allow executives to defer unlimited amounts of pay, to move earnings to offshore tax havens, and to stash unlimited sums in tax-deferred retirement accounts, according to the report.

It urged politicians to close all the loopholes and to change labour laws to make it easier for workers to bargain collectively for better wages.

Senators John McCain and Barack Obama have incorporated tirades against corporate excess into their respective campaigns for the U.S. presidency. Neither candidate has endorsed the sweeping changes favoured by the report's authors.

"The bipartisan attacks on runaway pay are encouraging but if the candidates are serious about change, they should vow to plug every single loophole that allows our tax dollars to flow into the pockets of top business leaders," said Anderson.

The report was timed to coincide with Monday's opening of the Democratic National Convention and to precede next week's Labour Day holiday and Republican National Convention.

Large U.S. firms paid their chief executive officers (CEOs) an average of 10.5 million dollars in salary, stock options, incentives, and bonuses last year – 344 times what the average worker earned. The report said this disparity likely would worsen because job growth is mainly concentrated in industries with the widest pay gaps.

The United States has long had the industrialised world's widest pay gaps. CEO compensation swelled from 85 times what workers earned in 1990, to 209 times in 1996 and 419 times in 1999, according to the government's Bureau of Labour Statistics. It peaked in 2001, at 525 times workers' average earnings.

Comparable figures for other wealthy nations generally did not exceed the double digits.

CEO pay growth often bears little resemblance to firms' performance. U.S. bosses' pay rose 313 percent from 1990 to 2003. By contrast, the Standard & Poor's 500 stock index rose 242 percent and corporate profits gained 128 percent.

During the same period, average worker pay rose 49 percent while inflation climbed 41 percent.

Often, the largest increases in pay have gone to CEOs whose companies have laid off the most workers or made the deepest cuts in workers' pensions, moves designed to boost financial statements and the price of stock, according to previous editions of the "Executive Excess" report, now in its 15th year.

These trends, and a series of corporate financial scandals dating back to around 2000, have motivated investors, regulators, and their political overseers to focus their attention on corporate pay.

Labour union-sponsored pension plans and other investors have launched scores of shareholder proposals seeking to moderate or regulate CEO pay. Dozens of these have won majority support. Although shareholder resolutions usually are non-binding, those that win majority backing have been virtually impossible for companies to disregard.

Even so, presidential and legislative candidates have sought to harness public discontent over CEO pay in the run up to November's general election. Both McCain and Obama have talked up measures that would increase shareholders' say over bosses' pay.

However, bills designed to close the loopholes identified in Monday's report have stalled in Congress. The report blamed this on pressure from corporate lobbies.