THE TAX SYSTEM IS OUT OF CONTROL

In the US some CEOs of the largest corporations earn more than the firms pay in taxes

By Florian Roetzer

[This article published in the German-English cyber journal Telepolis 9/1/2011 is translated from the German on the Internet, http://www.heise.de/tp/druck/mb/artikel/35/35411/1.html.]

In a report [1] of the Institute for Policy Studies causing a sensation in the US, the disparity contributing to the growing state indebtedness is clearly emphasized. After a massive redistribution of wealth by means of tax breaks benefiting the rich and very well-off was carried out since the 1990s, the chasm between the rich and poor and also between the rich and the middle class opened up again with simultaneous cuts to the social security systems. Since 1945 the share of corporate taxes in US tax revenue continuously shriveled. The conclusion of the 2011 report “Executive Excess” was symptomatic and symbolic that the bosses of the 25 largest US corporations earned more in 2010 than the corporations paid in taxes to the American state. Some corporations even paid no taxes.

The game with tax evasion is massively out of control. The report criticizes that the corporate CEOs jointly responsible for tax loopholes personally pocketed more than the corporations handed over to the community from their profits. In the study, the corporations that gave the greatest incomes to their top managers were closely analyzed. For a quarter of these corporations, the CEOs received more than the whole tax liability of the firms.

The low tax payments cannot be explained by falling profits. The profits of most of the 25 corporations were very high. Alongside many other possibilities for lowering or avoiding tax liability including shifting corporate tax activities to tax havens carried out by 18 of the 25 corporations, the high salary is a prominent method because it can be deducted from the corporate tax. In 13 of 25 corporations, the incomes of the CEOs rose while the tax payments fell. That the two largest banks supported with tax funds in the scope of the bank bailout, namely Citi-group and Bank of America, operate many branch offices in tax havens is brazen and paradoxical. The use of tax havens deprives the state of $100 billion annually.

“These tax havens accelerate the transfer of assets from local communities and the global South to the bank accounts of the richest and most powerful of the planet.”

That technology- and pharmaceutical corporations that hold rights to intellectual property establish firms in tax havens is also well-known. Google does this for example [Why Google hardly pays any taxes (2)]. Foreign firms that charge ridiculous amounts for the use of property can then deduct these costs from their tax in the US. In 2010, General Electric realized a profit of $5.1 billion before taxes worldwide and received $3.3 billion in tax rebates. GE head Jeff Immelt earned $15.2 million. International Paper Company paid its CEO 75 percent more in 2010. He earned more than $12 million while the firm received a tax rebate of $249 million. Verizon received $705 million from the state, posted a profit before taxes of $11.9 billion and paid its CEO $18.1 million. This is also true for Boeing. The corporation that annually receives orders of many billions financed by tax funds paid $13 million in taxes while its CEO earned $13.8 million. EBay uses tax havens extensively. Although its profits in the US before taxes amounted to more than $800 million, the corporation received tax rebates of $131 million and CEO John Donahue received $12.4 million.

The incomes of the top managers generally soared. In 2009 the CEOs of the largest corporations in the crisis-shaken US sinking in debts earned 263 times as much as an average employee. In 2010 it was 325 times (the proportion in 2007 was already 344:1). While the number of the unemployed is high and the salaries of normal employees hardly rose after the financial- and economic crisis, the corporate CEOs enjoyed mind-boggling incomes. On average, the bosses of the 500 largest corporations received an average annual income of $10.762 million in 2010, nearly 28 percent more than 2009 while the average employee salary of $33,121 increased 3.3 percent compared to the previous year. 25 corporate CEOS received more than the average, over $16 million in annual incomes.

The gap between the rich and the middle class grows every year. Driven by the rightwing Tea Party movement, the republicans fight for a debt reduction that strikes the poorer above all and against a higher tax liability for the rich. Super-rich persons like Warren Buffet recognize that this trend splits society and leads to instability. Rich persons in other countries [“Rich and Citizen” (3)] also realize that they should pay more taxes to the community [More Taxes, Better Conditions (4)]. But a higher tax on the rich was quickly swept from the table in Germany, France and Italy and not only in the US. A taboo exists as though an economic apocalypse would occur with a greater burden on the rich and corporations [Ups and downs around taxation of the rich (5)], as though too much liquid money gambled indiscriminately to make even better profits instead of investing had not been one reason for the financial crisis.

The report reveals how the trifling taxes for corporations and the rich came about. In 2010, the 25 corporations that paid their CEOs more than their taxes to the state spend $150 million for lobbying and campaign contributions. 20 of them spent more than they paid in taxes. The present tax system serves top managers and no one else, the report says.

LINKS
[1]
http://www.ips-dc.org/reports/executive_excess_2011_the_massive_ceo_rewards_for_tax_dodging/
[2]
http://www.heise.de/tp/blogs/8/148632
[3]
http://www.heise.de/tp/artikel/35/35316/1.html
[4]
http://www.heise.de/tp/artikel/35/35311/1.html
[5]
http://www.heise.de/tp/blogs/8/15036

This report is too complex. It needs to be broken down into cartoons and graphics.

Their prosperity is causing out austerity!