What the 2008 report finds is that five tax and accounting loopholes encourage excessive pay by allowing CEOs to avoid "their fair shares of taxes." In effect, ordinary US taxpayers are subsidizing the earnings of executives by at least $20 billion.
"Outrageous … it's a real cost to society," says Anderson. That's a big enough amount to subsidize 130,000 affordable housing units, she figures.
For that matter, it would pay for the Iraq war for about a month and a half.
One tax loophole gives preferential treatment to "carried interest" at a cost of $2.66 billion to Uncle Sam, according to the Joint Committee on Taxation.
To explain, in a publicly traded corporation, a CEO pay package typically includes salary, bonus, perks, and stock awards of various sorts. At private investment funds and hedge funds, managers get paid by taking an annual management fee, usually 2 percent of the capital they oversee, and by taking a larger chunk, usually 20 percent, of profits realized when they sell fund assets. The latter is termed "carried interest."
In good times on Wall Street, the sums can be huge. The top 50 highest-paid managers of these private investment firms made $558 million on average last year, the business trade journal Alpha reported. That's 19,000 times the average worker's pay. Yet the managers pay taxes on the "carried interest" at a capital gains rate of 15 percent, not the 35 percent for ordinary income in the highest tax bracket.
Critics see no big difference between a person managing other people's money with other professionals such as a doctor or lawyer whose earnings are taxed at ordinary income tax rates.
"It's a no-brainer," says Anderson. So when a bill closing the carried interest loophole passed the House but was blocked in the Senate by "an aggressive lobbying campaign by deep-pocketed investment fund industry movers and shakers," Anderson says, it "sent a chill down my spine."
Other loopholes include unlimited deferred compensation, offshore deferred compensation, unlimited tax deductibility of executive pay, and special accounting treatment of stock options.
