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Entries tagged "CEO Pay"

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John Faraci, International Paper -- Corporate Tax Dodger

September 6, 2011 ·

No two corporations follow the same exact tax-dodging strategies. To give a sense of the breadth of corporate tax-avoiding creativity, we are spotlighting a choice selection of the nation’s most aggressive corporate tax avoiders.

International Paper Company
Turning a tax boondoggle into personal gold

CEO compensation: $12.3 million
U.S. federal income taxes: $249 million refund

International Paper CEO John Faraci received a 75 percent pay hike in 2010. He pocketed $12.3 million.

John Faraci, CEO International Paper

Faraci owes his good fortune, in large part, to a wood pulp byproduct called “black liquor.” Paper mills have been using this byproduct as a fuel since the 1930s. But that didn’t stop International Paper from lobbying in Washington to have “black liquor” earmarked for subsidies and federal tax refunds designed to spur the development of entirely new biofuels.That lobbying would be successful — for International Paper.

How much has the company garnered from twisting the intent of the alternative fuel incentive? In 2009, this twisting handed the company a whopping $1.7 billion in cash and cut the International Paper tax bill by another $379 million. This windfall added up to nearly 9 percent of the firm’s annual global revenue. Last year, International Paper reported still another net $40 million tax benefit from the biofuel credit.

International Paper’s corporate board, naturally, cited the company’s strong cash flow as a rationale for Faraci’s generous compensation package.


Outraged? Sign our petition and share with your friends below.

Can Anyone Tackle Our Tax-Dodging CEOs?

September 6, 2011 ·

Sarah Anderson, a veteran analyst at the Institute for Policy Studies in Washington, D.C., has been the lead author of the Institute’s annual executive pay report ever since 1993.

On CEO pay, Anderson sighs, “I sometimes think I’ve seen everything.”

And then came the research for this year’s report — released last Wednesday — and the results floored even Anderson.

Last year, the Institute for Policy Studies researchers discovered, CEOs at 25 of America’s largest corporations — powerhouses that range from Boeing and Verizon to Prudential and G.E. — took home more in personal compensation than the companies they run paid Uncle Sam in federal corporate income tax.

In 2010, these 25 companies averaged a whopping $1.9 billion each in global profits. Yet they actually came out ahead last year at tax time. Uncle Sam owed them money, an average $304 million in tax refunds and credits.

The CEOs who call the shots at these 25 companies make up a quarter of 2010′s 100 highest-paid CEOs. Their average take-home last year: $16.7 million.

How could the companies these 25 CEOs rule be so profitable  — and so generous to their top execs — yet end up paying Uncle Sam so precious little?

Giant corporations like these, explains IPS study co-author Chuck Collins, are essentially “rewarding CEOs for aggressive tax avoidance.”

That reality has caught the eye of Rep. Elijah Cummings, the top Democrat on the House Oversight and Government Reform Committee. Last week, at the release of the new IPS study, Cummings called for hearings to examine “why CEO pay and corporate profits are skyrocketing while worker pay stagnates.”

The new IPS report, Executive Excess 2011: The Massive CEO Rewards for Tax Dodging, puts numbers on this soaring and stagnation. Last year, the study documents, CEOs at America’s S&P top 500 corporations saw their average pay jump 27.8 percent. Average worker pay rose just 3.3 percent.

The aggressive tax dodging that’s enriching corporations and CEOs, the IPS analysts add, doesn’t actually break any laws. Corporate America has seen to that — by just as aggressively gaming the political system to stud the tax code with loophole after loophole.

Of the 25 top firms that paid their CEOs more than Uncle Sam last year, Executive Excess points out, 18 sport tax haven subsidiaries.

In fact, 20 of the 25 major corporations that paid their CEO more than Uncle Sam last year, notes Executive Excess 2011, “also spent more on lobbying lawmakers than they paid in corporate taxes.” And 18 of the 25 “gave more to the political campaigns of their favorite candidates than they paid to the IRS in taxes.”

This corporate lobbying and campaign cash has, over the years, created a tax code that offers CEOs a wide array of tax-dodging options. Many involve tax havens. Of the 25 top firms that paid their CEOs more than Uncle Sam last year, Executive Excess points out, 18 sport tax haven subsidiaries.

The over 550 tax haven subsidiaries of these 18 firms make shifting profits offshore — and beyond the reach of federal tax collectors — almost effortless. One example of this effortlessness: the shell game known as “transfer pricing.”

To play this “transfer” game, a corporate chief typically hands a tax haven subsidiary control over the U.S.-based firm’s “intellectual property,” assets that might range from patents to logos. The shell company then charges the U.S.-based operation inflated royalties for the right to use this property.

The U.S.-based concern happily tallies these inflated royalty costs, adds them in with the company’s other regular expenses, and proceeds to tell the IRS that the company’s U.S. operations have lost money for the year. The resulting profits from all this scheming pile up, in turn, on the books of the tax haven subsidiary, where they face rock-bottom tax rates — or no taxes at all.

The tax code lets corporations ‘defer’ taxes, a power the code does not grant to individual taxpayers.

Last week’s IPS study drew extensive media coverage, from national dailies like the New York Times and Washington Post to top global news services. Reporters at many of these outlets asked the corporate giants the IPS study spotlights to defend themselves.

Some firms, like Bank of New York Mellon, offered no defense. Others, like Ameriprise and General Electric, argued they weren’t dodging taxes. They were merely “deferring” them.

The tax code does indeed let corporations “defer” taxes, a power the code does not grant to individual taxpayers. These deferrals, notes Executive Excess 2011 co-author Scott Klinger, amount to interest-free loans to corporations.

Even better — for corporations — the deferred taxes may go unpaid for decades. Taxes on earnings held offshore, for instance, do not come due until those earnings slide back into the United States. Adds Klinger: “If these funds are never brought home, the taxes are never paid.”

Verizon and eBay led the corporate pushback last week against the new IPS study. eBay charged that IPS had “misrepresented” the company’s tax situation. A Bloomberg reporter, in response, asked eBay and Verizon to disclose their exact 2010 federal tax return information. Both declined to make that disclosure.

Other reporters covering the corporate pushback told IPS that the corporate media relations officers that had contacted them couldn’t themselves explain what the numbers in the tax footnotes of their own corporate reports meant.

Corporations, IPS noted Friday in a reaction to the pushback, seem to complain “almost every time a story is written about a particular corporation’s tax position.” Yet these same corporations resist reforms that would require all companies to disclose clearer data on “what they actually pay in taxes.”

This year’s Institute for Policy Studies Executive Excess report offers outraged readers a guide to all the significant reform proposals — inside and outside Congress — on the tax and pay games CEOs play.

IPS has also created an action page online to help Americans push corporate tax and pay reform forward. And that reform, after this year’s Executive Excess, has seldom seemed more desperately needed.

“We have,” as the new 2011 Executive Excess sums up, “a corporate tax system today that works for top executives — and no one else.”

Sam Pizzigati edits Too Much, the online weekly on excess and inequality published by the Washington, D.C.-based Institute for Policy Studies. Read the current issue or sign up at Inequality.Org to receive Too Much in your email inbox.

A Response to Disputes by Corporations over our Methodology

September 2, 2011 ·

Since the release of Executive Excess 2011, several of the corporations included in our study have raised questions about our methodology. We first address the three concerns we have heard and conclude with a comment on the value that improved tax transparency would have on corporations and stakeholders alike.

Responses to Specific Concerns
We have heard three general complaints from corporations

“We have taken a provision for income taxes, far greater than the number you cite.”
Ameriprise and General Electric have both expressed this position in response to our report.

The corporate provision for income taxes is comprised of two numbers, the current taxes paid in a given year and the deferred taxes which may or may not be paid in the future. The provision for income taxes does create a liability for the corporation, an acknowledgment that there may be taxes to pay in future years, and does record a charge to earnings. But the money for deferred taxes remains in the company’s hands where it can be put in the bank and earn interest, or buy additional equipment to expand. We have been clear in our report that we are focused on the current taxes as the best approximation of the net result of what corporations actually paid in a given year.

Why do we say deferred taxes may or may not be paid in the future? Because some forms of deferred taxes can be put off indefinitely. For instance, taxes on funds held offshore do not become due until those funds are brought home to the U.S. If these funds are never brought home, the taxes are never paid.

To create an analogy using two friends, one friend may give another friend a note saying they will give him or her $100 in 20 years. With this promise of deferred payment they’ve created a liability for themselves, but no reasonable person would seek to claim that the first friend paid the second the $100 in the current year. We have sought to measure that which actually changes hands, not that which might change hands years down the road.

One more word here: even the current tax reported is an approximation. For companies with a December fiscal year, tax filings are generally made in September, while 10-K reports with the SEC are filed in February or March. Thus, what makes its way into the 10-K report is the best guess at the time of the year’s tax position. But in most if not all cases, adjustments continue to be made up until the tax form is filed with the IRS.

“You’ve excluded all the taxes that we pay to states and foreign governments”
Several companies have responded by pointing to the large amounts they pay in state and local taxes, taxes to foreign governments and even payroll taxes. Verizon and eBay have both raised this objection.

Again we believe we have been clear that our focus is on corporate income taxes paid to the U.S. federal government.  We did not investigate or make any claims about the taxes corporations paid to state, local, or foreign governments. The background for our report is a time when there is heightened focus on the federal government’s fiscal situation. Massive cuts to government programs are underway, including programs and government investments that benefit businesses. Our intent was to call into question whether corporations are paying their fair share toward the cost of government.

“Our tax refunds were the result of accounting adjustments and settlements.”
Accounting adjustments and tax settlements are common elements of corporate tax reporting and they do affect corporations year-to-year. eBay has issued a public statement saying that their refund in 2010 stemmed from a settlement pertaining to previous years’ tax returns.

In our report, we took a snapshot of a single year and did not attempt to adjust the numbers reported in the current tax provision for any of the companies in the study. We have noted in the report both that all of the ways corporations reduce their taxes are legal and also noted that in our opinion some are more legitimate, while others are not. We have not attempted to explain the reasons behind the particular current tax number for any of the companies in the report.

Clearer corporate tax reporting is in the interest of all
Objections by corporations to the way their taxes are calculated are not new. It happens almost every time a story is written about a particular corporation’s tax position. Journalists are caught in the middle of a “he said – she said” dispute and the public is left confused about who to believe.

We are reminded in our 18 years of work on executive pay that the disputes we now see about taxes used to happen around how CEO pay was calculated. The SEC stepped in and required that obtuse proxy statements, written in legalese, be re-written in plain English. Many corporations complained it couldn’t be done, but it has been and with great success. There remain today different ways of calculating CEO pay, but the differences are minor and the disputes over accurate numbers have all but disappeared.

We believe we are at the same point today with corporate tax disclosure that we were with executive pay a decade ago. There is obviously an enormous public appetite for more and clearer information on what corporations actually pay in taxes each year, and not just in this country, but in all of the taxing jurisdictions of the world. For instance, it would be informative to know what share of profits and taxes are being paid in places like the Cayman Islands or Luxembourg.

While the public is demanding more and clearer disclosures, corporate tax reporting has, in fact, grown more opaque and indecipherable, even to those with advanced degrees in corporate tax law. Some reporters who called us for clarifications reported to us that the corporate media relations officers that contacted them could not themselves explain what the numbers in the tax footnote meant. It is time for a change.

We are fortunate to have the work of the Extractive Industry Transparency Initiative (EITI), a cooperative effort between the activist community and energy and mining companies, that has established standards for report on taxes and other payments made on a country by country basis throughout the world. Country by country reporting has made a huge difference in understanding corporate activities and in cracking down on corruption in many nations.

One of the changes we advocate in our report is adopting country-by-country reporting standards for all corporations. Making these audited numbers available would reduce, if not eliminate, the disputes that we’ve seen in recent days over how much corporations really pay. While the vast majority of corporations oppose country-by-country reporting, we welcome any of the companies featured in our report joining with us to call upon Congress to enact country-by-country reporting, one of the provisions of the Stop Tax Havens Abuse Act discussed in our report.

Working together we might be able to bring the same clarity and transparency to corporate tax reporting that we have achieved in executive pay disclosures. Such transparency would benefit corporations and stakeholders alike.

Fracking the IRS

August 31, 2011 ·

As the Super Congress eyes trillions in budget cuts that will undermine the quality of life for most Americans, here's a stunning fact to contemplate: 25 hugely profitable U.S. companies paid their CEOs more last year than they paid Uncle Sam in taxes.

In other words, the more CEOs dodge their civic responsibilities, the more lavishly they're paid. That's the key finding of a new Institute for Policy Studies report, Massive CEO Rewards for Tax Dodging, which I co-authored.

These artful dodgers include the CEOs of Verizon, Boeing, Honeywell, General Electric, International Paper, Prudential, eBay, Bank of New York Mellon, Ford, Motorola, Qwest Communications, Dow Chemical, and Stanley Black and Decker. Their average annual compensation totaled $16.7 million, well above last year's average of $10.8 million for the CEOs of S&P 500 companies.

Instead of paying their fair share, these companies spend millions lobbying for additional tax breaks and loopholes. Twenty of the 25 companies spent more lobbying Congress last year than they paid the IRS in federal corporate taxes. General Electric invested $41.8 million in lobbying and got $3.3 billion in tax refunds. Boeing spent $20 million on lobbying and got a $35 billion contract from the U.S. government, while paying a paltry $13 million in U.S. taxes for a company with $4.3 billion in U.S. income last year.

Eighteen of the 25 companies aggressively use off shore tax havens to shift profits around the globe to avoid U.S. taxes. These 18 companies together had 556 subsidiaries in the Cayman Islands, Singapore, Ireland, and other havens. The offshore scam works like this: companies pretend their profits are earned in low-tax or no-tax jurisdictions — and then feign losses from their U.S. operations at tax time.

Whatever happened to corporate civic leadership? A previous generation of CEOs would have been ashamed to be compensated so lavishly while their companies abandoned responsibility for paying their fair share. They would have been embarrassed to go year after year contributing little or nothing to the public investments that make the United States a vibrant business environment.

Here are a few examples of these champion tax-dodgers:

  • Chesapeake Energy paid its CEO Aubrey McClendon $21 million last year but paid zero federal corporate income tax in 2010. Chesapeake is fracking the tax code, drilling it for every possible subsidy it can extract — while lobbying to preserve antiquated tax breaks for oil and gas industry.
  • Online retailer eBay paid its CEO John Donahoe $21.4 million last year while collecting a federal tax refund of $131 million. eBay' 31 subsidiaries in Switzerland, Singapore, and seven other tax havens facilitate its efforts to move money around the planet as a tax-dodging strategy.
  • Insurance brokerage Marsh & McLennan paid its CEO Brian Duperrault $14 million yet collected a $90 million tax refund from Uncle Sam. The company has 105 subsidiaries in 20 off shore tax havens, including 25 in Bermuda — a favorite locale for insurance companies seeking to avoid both taxes and regulation.

These super-moocher companies happily benefit from the privileges and advantages of doing business in the United States. If a competitor tries to steal their product or idea, these corporations rush to the U.S court system and law enforcement agencies for remedies and justice. The U.S. military guards their global assets.

They use the fertile ground of publicly funded research and infrastructure to bolster their own profits. They create new products from a foundation of Uncle Sam's investments in medical and scientific research and government funded technologies like the Internet. Our taxpayer-funded roads, ports, and bridges bolster their business environment. Our public schools and universities educate the workers these companies rely on. In fact 16 of these 25 CEOs attended public universities. They personally were educated with help from U.S. tax dollars.

These CEOs profess to love America. But when it comes time to pay the bills, they'd rather outsource that job over to you or the small business down the road.

Congress should pass the Stop Tax Haven Abuse Act which would limit some of these tax shenanigans. In the face of growing fiscal austerity, these companies should contribute to the solution and pay their fair share of U.S. taxes.

Chuck Collins is a co-author of the new Institute for Policy Studies report, Executive Excess 2011: The Massive CEO Rewards for Tax Dodging.

An Eye-Opening Window into America's Executive Suites

April 19, 2011 ·

AFL-CIO president Richard Trumka, for his annual efforts at the helm of America’s largest labor federation, makes four times the pay that goes to the federation’s typical employee.

Michael Jeffries, the CEO at national retail giant Abercrombie & Fitch, has been making close to 1,000 times the pay that goes to his typical employee. Shareholders at Abercrombie seem to feel their CEO makes too much.

Last April, in advisory “say on pay” balloting, these shareholders voted against Abercrombie’s executive pay plan. How did Abercrombie’s corporate directors respond? They moved quickly to show how much they feel their shareholder pain. The directors announced a stiff new limit on how much free personal travel CEO Jeffries can take on the Abercrombie jet.

In 2009, the value of this free personal travel perk topped over $800,000. Jeffries must now reimburse the company for any personal travel over $200,000.

Has a new day on CEO pay finally dawned in America’s corporate boardrooms? Not exactly, notes the just-released new 2011 edition of Pay Watch, the AFL-CIO’s energetically informative executive compensation Web site. Abercrombie CEO Jeffries did lose, the new Pay Watch points out, over a half-million in corporate jet perks. But the Abercrombie board, in exchange for the perk limit, agreed to up the total Jeffries take-home by an additional $4 million!

Incredibly revealing anecdotes like this Abercrombie outrage abound in the new AFL-CIO Pay Watch, the best one yet. But Pay Watch does an equally effective job placing these anecdotes in a broader perspective — and, in the process, thoroughly debunks the rationalizations for excessive executive pay that spout regularly from the lips of CEOs and their handlers.

Does current CEO compensation truly reflect, as these handlers love to claim, “pay for performance”? Over the last decade, the new Pay Watch observes, “CEOs of the largest American companies received more in compensation than ever before in U.S. history.” Yet corporate share prices ended 2010 19 percent off their year 2000 high.

The new Pay Watch’s most vital contribution to the ongoing debate over executive pay? That may well be the site’s sublime interactivity.

You can compare, on Pay Watch, how many years you would have to work to match what the CEO at your workplace makes in just one. And you can contrast the pay of superstar CEOs with an assortment of take-homes elsewhere in the American economy — and share the results, for the first time ever, through an innovative Pay Watch Facebook app.

And the pages of Pay Watch don’t just inform us. They couple information with a variety of action steps we can take to advance a meaningful CEO pay reform agenda.

High on that agenda: the campaign to protect the Dodd-Frank financial reform law provision enacted last summer that requires all major companies to disclose the pay gap between their CEOs and their workers. Corporate America is currently trying to gut this new disclosure mandate, by sabotaging the regulations supposed to enforce it.

Disclosure remains the first step to meaningful CEO pay reform. This week’s edition of Too Much, our IPS weekly email newsletter on excess and inequality, spotlights a brand-new reform proposal — from Harvard economist Richard Freeman — that builds on this disclosure. Not on the mailing list for Too Much? You can sign up here to subscribe.

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