Tesla, Netflix and many other big companies pay more to executives than they do in taxes. It's time to rein them in.

By David Kass

35 major U.S. corporations have paid less than nothing in federal income taxes. Instead, they collectively netted almost $2 billion in refunds

These firms weren't in bad financial shape - they're just very good at avoiding taxes.

It's tax season, and many Americans share a sense that the U.S. tax code - and the economy it underpins - remains deeply unfair. President Joe Biden addressed that feeling in his recent State of the Union address, calling out corporations and billionaires that pay "less than working people pay in federal taxes."

"The way to make the tax code fair," Biden said to applause, "is to make big corporations and the very wealthy finally pay their share." That's also the way to make the economy more fair: to start to "unrig" it and make it work again for working people.

Yet corporate tax dodging isn't the only issue, new research shows. Many of the same big firms that use loopholes and special breaks to pay less in taxes also lavish enormous sums on their top executives.

By overpaying their executives while underpaying their taxes, these corporations funnel more money to those who need it least while underfunding public services that help working families. This contributes to the large income and wealth gaps in the U.S. between the ultrarich and all the rest of us - a gap that destabilizes the U.S. economy, demoralizes society, and endangers democracy.

A new report from Americans for Tax Fairness and the Institute for Policy Studies reveals that 35 major U.S. corporations - including well-known names such as Ford Motor (F), Netflix (NFLX), and Tesla (TSLA)- paid less in federal income taxes between 2018 and 2022 than they paid in compensation to their top five executives.

The pay packages are eye-popping. The companies collectively paid their CEOs, chief financial officers (CFOs), and the next three highest-paid executives on the organizational chart at each firm almost $10 billion over the course of those five years.

Also shocking is the amount of taxes paid. Or rather not paid. Because these same 35 corporations over that five-year stretch contributed less than nothing in federal income taxes Instead, they altogether netted almost $2 billion in refunds.

These firms weren't in bad financial shape - they're just very good at avoiding taxes. They enjoyed $9.5 billion in collective net profits over those five years.

Another recent study from the Institute on Taxation and Economic Policy identified 55 corporations with almost $700 billion in combined profits over the same 2018-22 time period that we studied. Together, those corporations paid a tax rate of under 5% - including 23 that paid nothing and instead got refunds.

Multinational companies are able to shift U.S. profits to low- or no-tax overseas havens.

How are these profitable corporations getting away with paying so little?

Part of the problem is that the corporate tax rate is simply too low. In their 2017 tax law, former President Donald Trump and congressional Republicans cut that rate by two-fifths, to 21%. But that's just the start of the problem.

Multinational firms can further whittle down their U.S. tax bills - sometimes to nothing - by using accounting maneuvers to shift what are really U.S. profits to low- or no-tax overseas havens. And it's not just earnings that get offshored - sometimes it's jobs, too. The Republican tax law actually reduces U.S. taxes on U.S. companies the more operations they have in foreign countries.

Companies can also use overly generous deductions for business expenses like depreciation, stock options, interest and research to shrink their taxable income. But those special tax breaks don't diminish their earnings when it's in the firms' interest to appear highly profitable. Corporations are allowed to use a different set of rules to figure the profits they advertise on Wall Street to attract investors.

President Biden and Democrats in Congress have already taken steps to ensure the biggest corporations pay closer to their fair share by creating a minimum tax based on those Wall Street (book) earnings. They've also moved to curb stock buybacks by taxing them. Share repurchases are one popular way for firms to inflate executive pay by artificially increasing their stock prices.

Raising the corporate tax rate to 28% would generate $1.3 trillion over the next decade.

But we need more reforms to combat the twin problems of undertaxed corporations and overpaid executives.

Raising the corporate tax rate to 28% would generate $1.3 trillion over the next decade (the rate was 35% under President Barack Obama). Congress should also close tax loopholes and eliminate wasteful tax breaks, including cracking down on the use of overseas tax havens. Meanwhile, excess CEO pay could be trimmed with tax penalties on companies with huge CEO-worker pay gaps, a higher surcharge on share buybacks, and by refusing to reward inequitable companies with federal contracts.

Until we get both phenomena under control, corporate bosses will go on paying themselves too much and contributing too little to the nation that helps make their corporate and personal success possible. And the American people will continue to rightly sense our tax system and economy are unfair.

David Kass is executive director of Americans for Tax Fairness.

More: U.S. corporations want a retroactive tax break from Congress that would cost Americans $33 billion

Also read: The 'EV penalty': Electric car owners are paying more taxes and fees in 35 states, study finds

-David Kass

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03-25-24 1306ET

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