If you weren't already irritated by the exorbitant paychecks U.S. CEOs routinely pull down, or the fact that U.S. corporations aren't bearing their share of the tax burden, wait until you get a load of this fun fact when those two issues are combined: D espite earning billions in profits, no less than 25 major U.S. firms paid less in federal income taxes last year than they paid their CEO.
And get this – most of those companies actually received tax refunds!
What makes this revelation particularly painful is that so many U.S. companies are minimizing their tax payouts just as this country more than ever needs to boost its revenue, nearly 97% of which comes from taxes of all types. It needs the revenue because of spiraling deficits, and a debt burden so large that it contributed to the United States losing its pristine AAA credit rating for the first time in more than 50 years.
Here's what's really galling: So many U.S. firms are paying so little in taxes because they're taking advantage of a perfectly legal loophole in American tax law. According to that law, a U.S. -dom iciled company doesn't have to pay any taxes on money it earns overseas until that money is repatriated back to this country. So U.S. firms leave their foreign earnings overseas, and report huge bottom-line profits as a result.
Many of these firms are household names, including Verizon Communications Inc. (NYSE: VZ), The Bank of New York Mellon Corp. (NYSE: BK), International Paper Co. (NYSE: IP), Prudential Financial (NYSE: PRU), eBay Inc. (Nasdaq: EBAY), and General Electric Co. (NYSE: GE).
GE may be the most egregious example of the situation we're describing. CEO Jeffrey Immelt made $15.2 million in 2010, when GE's profit was $75.49 billion.
And GE received a $3.3 billion tax refund.
If you're interested in the lowdown on some of these low-down offenders, take a look at some of the examples contained in the IPS report:
- Verizon made a total profit of $62.42 billion in 2010, and received a tax refund of $705 million. CEO Ivan Seidenberg earned $18.1 million.
- Prudential Financial brought in a total of $18.69 billion in profit in 2010. It got a $722 million tax refund from the federal government, while paying CEO John Strangfeld $16.2 million.
- eBay made a $6.59 billion profit last year, and got a $131 million tax refund. CEO John Donahoe received $12.4 million.
- Bank of New York Mellon made a profit of $9.42 billion in 2010, and received a $670 million tax refund. CEO Robert Kelly made $19.4 million.
- International Paper Co. had a profit of $6.70 billion last year, and got a $249 million tax refund. CEO John Faraci received $12.3 million.
Although several of the companies have disputed the report – "GE pays what it owes" was typical of the reactions – how fair is it that entities making billions in profits are getting a tax refund from a desperate and debt-laden government instead of paying their fair share?
"Corporations don't dodge taxes. The people who run corporations do," the IPS said in its report. "And these people – America's CEOs – are reaping awesomely lavish rewards for the tax dodging they have their corporations do."
News and Related Story Links:
- Money Morning:
Hot Stocks: General Electric Co. (NYSE: GE) Creates New Business Focus to Rise from Recession
- Agence France-Presse:
CEO pay exceeds taxes at 25 US firms: study
- Institute for Policy Studies:
About the Author
David Zeiler, Associate Editor for Money Morning at Money Map Press, has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.
Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.
Dave has a BA in English and Mass Communications from Loyola University Maryland.