Major companies haven’t paid federal taxes in 5 years
Tesla, Netflix spend more on executive pay
Dozens of large corporations paid more money to their top executives than they shelled out in federal taxes between 2018 and 2022, according to a watchdog report released Wednesday.
The analysis names 35 corporations, including Tesla, Netflix and Ford, that each reportedly spent more on compensation to their five highest-paid executives than they paid in federal income taxes in that time. Collectively, they spent $9.5 billion on their top executives, while their combined federal tax bill came to minus $1.8 billion: a refund.
In fact, all but one of 18 profitable corporations not only paid no federal income tax but received refunds.
The report is by the Institute for Policy
Studies, a left-leaning think tank, and the nonprofit Americans for Tax Fairness.
It comes as the Internal Revenue Service is ramping up audits of large businesses and high-income Americans. President Joe Biden added nearly $80 billion in IRS funding to the Inflation Reduction Act of 2022 with the hope that the investment would recoup as much as $400 billion over a decade in unpaid taxes from wealthy people and companies.
The top statutory tax rate has declined from 51% in 1986 to 21% today, according to the Tax Policy Center.
While corporate tax revenue has stagnated, the report said, executive pay has skyrocketed. The typical CEO compensation package reached $14.8 million in 2022 compared to $77,178 for the average worker in those companies, according to the Associated Press.
“Lavish corporate compensation packages and inadequate corporate tax payments are not unrelated phenomena,” the report said. Corporate boards “have more money to spend on their highest-paid employees when they don’t have much or anything to pay in taxes. Until this self-reinforcing cycle is broken, we’ll have a corporate tax and governance system that works for top executives – and no one else.”
The data come from financial documents filed with the Securities and Exchange Commission. Compensation includes base salary, cash bonuses, perks, stock options, stock awards and changes in the value of retirement benefits.
The watchdog report also draws on recent research by the Institute on Taxation and Economic Policy, another
left-leaning think tank. That group found 342 large corporations paid a cumulative effective tax rate of 14.1% over five years, well short of the statutory corporate tax rate of 21%. Not all economists agree with the report’s conclusions. Kyle Pomerleau, senior fellow at the nonpartisan American Enterprise Institute, said low corporate tax rates reflect big corporations doing what they can to reduce their tax burden, just like ordinary taxpayers.
“These low effective tax rates are not reflective of tax evasion,” he said. “It’s tax avoidance. Tax evasion is illegal. Tax avoidance is legal.”
Whether you’re a business or a private citizen, he said, “if there’s a tax credit or deduction you’re entitled to, you’re going to take it.”
Pomerleau said many corporate tax breaks, such as credits for research and development, are tailored to encourage “activities that have a broad positive effect on the economy.”
One firm highlighted in the report is FirstEnergy, the electric utility. According to the watchdog groups, FirstEnergy paid $121 million in executive compensation over 5 years versus minus $44 million in federal income tax.
FirstEnergy responded in a statement: “FirstEnergy pays taxes in compliance with federal, state and local tax laws. In addition to federal taxes, the company pays hundreds of millions in state, local and payroll taxes every year.”
The company said its executive pay programs are “carefully designed to attract, retain, focus and reward our talented and diverse executive team,” and that shareholders overwhelmingly support the firm’s compensation structure.
Netflix, the report found, paid its five top executives $652 million between 2018 and 2022, while paying only $236 million in cumulative federal income tax.
In response, the streaming company said, “Netflix complies with tax laws and regulations in the US and around the world. From 2018-2022 we paid global income taxes in excess of $2B and in 2023 we paid nearly $1.2B in global income taxes, the majority of which was US federal income tax.”
The report also names Duke Energy. The utility paid $181 million to top executives over 5 years, compared to minus $1.2 billion in federal income taxes, the report said.
“Duke Energy fully complies with federal and state tax laws,” the company said in response. “Duke Energy has a deferred tax balance – this does not mean Duke Energy is not paying these taxes, it means that our taxes are due in future years, and we will pay them. We have approximately $10.6 billion in deferred tax liabilities related to investments in the energy system on behalf of our customers.”
The company said it is investing private capital in “our nation’s critical energy infrastructure,” a corporate practice incentivized by the federal tax code, adding, “It’s also important to note that at the state and local levels, we are often the largest taxpayer in many of those communities and much of the taxes paid are directed toward local services.”