President Biden's Budget Proposal Clashes with Corporate Executive Compensation and Tax Payments

According to a new analysis by the Institute for Policy Studies (IPS) and Americans for Tax Fairness (ATF), from 2018 to 2022, top executives of major U.S. companies received more in compensation packages than the businesses paid in federal taxes. The report raises concerns about whether some of America's largest and most profitable companies are paying their fair share. This issue comes at a time when President Joe Biden is proposing to increase the corporate tax rate to 28%, up from the 21% set under the 2017 Tax Cuts and Jobs Act (TCJA).

Linking Executive Pay and Tax Rates

The analysis examines tax and compensation data in the first five years after the TCJA took effect, aiming to draw a connection between generous pay packages for top executives and the lower tax rates that corporations have enjoyed since 2018. The trend of increasing pay for corporate leaders has been ongoing, with CEOs in 2022 earning approximately 344 times more than the typical worker, up from a ratio of 21-to-1 in 1965, as reported by the Economic Policy Institute.

"We have these never-ending fights in Congress over our fiscal situation, one crisis after another, and one reason why we're facing fiscal challenges is because corporations have not been paying their fair share of taxes," said Sarah Anderson, a lead author of the report and director of the global economy project at IPS.

Anderson added, "The executive compensation system is really set up to incentivize executives to push for corporate tax cuts and take other measures that will boost the value of their shares in the short term and the value of their paychecks."

Companies Paying Executives More Than Federal Taxes

Among the companies highlighted in the report, several household names, including automakers Tesla and Ford Motor, and financial services company AIG, paid their top five executives more than they paid in U.S. taxes over the five-year period analyzed. Tesla, for example, paid its top executives a total of $2.5 billion between 2018 and 2022, while receiving a $1 million tax credit over the same period. Ford Motor Company stated, "Base pay for all our employees is competitive, with variable compensation tied to drivers of quality and customer and shareholder value. For executives, the variable compensation represents about 90% of their pay."

Tax Strategies and Effective Tax Rates

It was revealed that Tesla utilized a legal tax strategy to carry forward losses from earlier years to offset more current profits. Many corporations pay effective tax rates that are significantly lower than the statutory 21% federal rate due to loopholes and other breaks that help them lower their tax burdens. The effective tax rate for large, profitable companies declined to 9% in 2018, the year the TCJA's lower rates took effect, down from 16% in 2014, according to the Government Accountability Office.

Policy Implications and Impact on Inequality

President Biden and other Democratic lawmakers argue that big companies and their executives have disproportionately benefited from the TCJA's tax cuts, while failing to make a proportional investment in workers and the U.S. economy. These tax cuts, which also lowered individual tax rates, have contributed to the nation's ballooning debt, which has nearly doubled in the last decade to $33 trillion. The tax cuts and outsized executive pay are exacerbating income and wealth inequality, according to the IPS and ATF.

"It says a lot about the priorities of the companies that a handful of people at the top are getting more than all of the money that profitable corporations are paying to help fund the vital public services and infrastructure that we need for our economy to thrive," said Sarah Anderson.

These findings raise questions about the fairness of the current tax and compensation structures, prompting a larger debate about corporate responsibility and the economic impact of tax policies.