We all pay for Wall Street

What's the hustle? A U.S. corporation pretends to make all of its profits at a subsidiary based in a place like the Grand Cayman Islands that has no corporate income tax. Meanwhile, the U.S. branch of the company reports only losses. No U.S. profits, no taxes.

Corporations play a similar game with executive pay. By employing a variety of tax loopholes and accounting tricks, they reduce their taxes and shift the bill onto the backs of the citizens. A new report by our organization, the Institute for Policy Studies, estimates that we, as taxpayers, subsidize bloated executive pay to the tune of more than $20 billion a year.

Stock-option accounting games are another way taxpayers contribute to CEO largesse. Corporations report one compensation figure to their accountants when they award CEO stock options and report a different, often much higher figure to the IRS when the CEO cashes in the options. Thus, companies inflate their earnings to shareholders and reduce their tax bills. The cost to the rest of us: $10 billion a year.

Rep. Barbara Lee, D-Calif., has proposed legislation, the Income Equity Act, which would cap the deductibility of CEO pay at no more than 25 times the pay of the firm's lowest paid worker. This would reduce taxpayer incentives for bloated pay and could generate more than $5 billion a year in revenue.

Congress must eliminate subsidies for excessive pay and restore fairness to our tax system. For too long, ordinary Americans have been footing the corporate bill.

Chuck Collins and Sarah Anderson are co-authors of the report "Executive Excess 2008: How Average Taxpayers Subsidize Runaway Pay," published by the Institute for Policy Studies and United for a Fair Economy.

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Date published: 9/23/2008