Corporate Titans or Tax Titans? The Big Executive Payout at Taxpayer Expense

President Joe Biden’s recent State of the Union address threw a much-needed spotlight on the egregious practice of corporate giants: paying their top executives sky-high salaries while contributing little to nothing in federal income taxes. This issue strikes at the heart of an ongoing debate about fairness and responsibility in the American economy, especially when entities like Tesla, under the leadership of Elon Musk, can amass billions in profits without paying federal income taxes, all while compensating their executives with fortunes.

Our investigation, in partnership with the Institute for Policy Studies and Americans for Tax Fairness, reveals a startling pattern not confined to Tesla alone but replicated across 34 other profitable U.S. firms. These companies, including familiar names like Ford, Netflix, and T-Mobile, have consistently prioritized executive compensation over their federal tax obligations from 2018 to 2022.

Even more firms, 29 to be exact, followed a similar trend for at least two of the five years under study. Among them is American International Group (AIG), a company whose controversial bailouts and bonus plans during the 2008 financial crisis still echo in the halls of economic infamy. Today, AIG’s practices of enriching its top executives at the expense of the American taxpayer persist, paying more to its top five executives than it does in federal income taxes, despite raking in $17.7 billion in U.S. profits during the same period.

This phenomenon of lavish executive pay coupled with minimal corporate tax contributions is no mere coincidence. Executives, incentivized by potential windfalls from tax cuts, often spearhead lobbying efforts for corporate tax reductions, knowing well that these savings are likely to end up in their own pockets. The 2017 Republican tax overhaul, which cut the corporate tax rate from 35 percent to 21 percent without addressing existing loopholes, only exacerbated this trend. The aftermath saw corporations diverting their tax savings to record-breaking stock buybacks, boosting the value of stock-based executive compensation, and further widening the wealth gap while depleting federal coffers of much-needed revenue.

The question then arises: how do we break this cycle of corporate greed that benefits a select few at the expense of the many? The path forward requires a multifaceted approach. Congress can take significant steps by not only restoring the corporate tax rate to more equitable levels but also by sealing the loopholes that enable profit-shifting and production outsourcing. Additionally, curbing excessive executive pay through comprehensive reforms—from tax adjustments to stricter regulations on stock buybacks and bonuses—can help realign corporate priorities towards contributing to the public good rather than individual enrichment.

The stark reality is that as long as our corporate tax and compensation system favors the elite executives, the economic divide will continue to grow. It’s time for a change, one that ensures corporations and their top brass pay their fair share, contributing to the societal and infrastructural needs that help our economy and communities thrive. Only through such measures can we hope to foster an economic environment that works for everyone, not just those at the top.