Are you earning more than your company pays in taxes?

Are you earning more than your company pays in taxes?

Are you earning more than your company pays in taxes? The report, co-authored by the Institute for Policy Studies and the Center for Effective Government, provides an awfully damning condemnation of both the U.S. taxation system, and secondarily, the compensation of CEOs.

The seven firms in question earned $74 billion in pre-tax income while netting $1.9 billion in refunds from Uncle Sam. At the same time their CEOs brought home an average of $17.3 million in total compensation in the past year.

It’s quite the magic trick.

Extending the pool of candidates from 30 corporations to the top 100 in America, a total of 29 companies paid their CEOs more in 2013 than they paid in federal income taxes. Specifically, the average company in this group earned $817 million in pre-tax income while snagging an $8 million tax refund. The CEOs of these companies earned an average of $32 million in 2013, collectively raking in just shy of $1 billion.

That’s great news for shareholders (CEOs chief among them) but terrible news for taxpayers.

Shareholders are happy because most of the money that would normally have been earmarked for taxes instead went to share repurchases reducing share count and increasing earnings per share. Happiest of all are the CEOs of America’s largest 500 companies who on average received 83% of their 2012 compensation in the form of stock options and awards.

According to William Lazonick, a professor at the University of Massachusetts at Lowell, the decade between 2003 and 2012 saw S&P 500 companies pay out 54% of their earnings towards share repurchases and another 37% for dividends. There’s no question the five-year bull market was stoked by buybacks.

It’s bad news for taxpayers because the money diverted to shareholders instead of into the federal coffers means services get cut – important ones like Veterans Affairs.

If the seven firms detailed earlier paid the statutory tax rate of 35% in 2013 instead of getting refunds, the federal coffers would have been $27.8 billion wealthier. Given 48% of Americans don’t own any equities it would seem a large percentage of the U.S. population is losing out in a big way.

Does the same problem exist in Canada? Stay tuned. WP will explore this subject in the near future.