A project of the
Institute for Policy Studies

Once Upon a Time, Corporations Paid Taxes

The current European revolt against CEO greed, if successful, might leave Corporate Europe looking just like Corporate America — in the 1950s.

By Sam Pizzigati

In 1950, GM's Charles Wilson collected a small fraction of what top execs pocket today.

In 1950, GM’s Charles Wilson collected a small fraction of what top corporate executives pocket today.

In America today, the New York Times reports, we’re living in “a golden age” — for corporate profits. These earnings have been leaping at a 20 percent annual clip. In fact, to find a year when corporations were grabbing as great a share of America’s income as they’re grabbing now, you have to go back to 1950.

But corporate execs in 1950 had cause to mute their celebrating. Unlike execs today, they paid heavy taxes on both their corporate and individual earnings.

In 1950, by statute, major corporations faced a 42 percent tax rate on their profits, a rate that would jump the next year to just over 50 percent. The share of profits corporations actually paid in taxes, after exploiting loopholes, averaged about 40 percent throughout the 1950s.

The tax hit on top executive individual incomes would be even heftier. In 1950, General Motors chief Charley Wilson took home more pay than any other U.S. chief executive. Wilson reported $586,100 in income that year, about $5.6 million in today’s dollars. He paid $430,350 of that income — 73 percent — in taxes.

Top corporate executives today operate in a totally different universe. The corporations they run, for starters, face a much smaller tax bill. The top corporate tax rate has dropped to 35 percent, and loopholes have proliferated.

In 2011, major U.S. corporations actually paid on average only 12.1 percent of their earnings in taxes. That same year, adds the Institute for Policy Studies, 25 major U.S. corporations paid their CEOs more than they paid in corporate income taxes.

Corporate execs as individuals enjoy an even better deal these days than the corporations they run, both before and after taxes.

Yesterday’s top execs paid heavy taxes on both their corporate and individual earnings.

General Motors ranked as America’s mightiest corporation in 1950. Yet the executive pay that Charley Wilson took in for running GM amounts to less than half the $12.1 million average pay, after adjusting for inflation, that went to the CEOs at America’s 500 top publicly traded corporations in 2012.

Two years ago, the CEO of contemporary America’s mightiest corporation, Apple computers, pocketed a pay deal worth $378 million, or over 67 times what GM, after inflation, paid Charley Wilson in 1950.

We don’t know how much Apple CEO Tim Cook is paying in federal income taxes today. We do know, from IRS stats, that Americans who made over $10 million in 2010 paid on average just under 24 percent of their incomes in federal income tax, less than a third what Charley Wilson paid in 1950.

How much should we read into these huge contrasts between corporate profits, pay, and taxes back over a half century ago and today? What difference does any of this make for the rest of us?

A huge difference. The outrageously rich rewards that top executives can pocket in 21st century America — and the absence of any meaningful tax bite on these rewards — give our top executives a powerful incentive to behave outrageously, to relentlessly pump up profits by whatever means necessary.

Our modern top execs, as one analyst notes, have more of an incentive “to loot” their companies than invest in their futures. The more they “loot” — by downsizing and outsourcing, by squeezing consumers, by stiffing Uncle Sam at tax time — the fatter the quarterly bottom lines, the greater their personal pay.

Average American workers are making less today, in real dollars, than they earned a dozen years ago.

The end result of this looting: an America where corporate profits are setting records while typical workers, as former U.S. labor secretary Robert Reich points out, are making less today, in real dollars, than they earned a dozen years ago.

Corporate executives in Europe have been watching this U.S. corporate greed grab with intense personal interest. Over recent years, they’ve done their best to mimic U.S. corporate standard operating procedure, sky-high executive pay included. But Europeans are pushing back against this “Americanization.”

In Switzerland, 68 percent of voters in a landmark March 3 referendum opted to ban the most lucrative categories of executive pay bonuses. This overwhelming voter support for executive pay limits, a leading Zurich newspaper opined last week, reflects a deep-seated public sense “that company managers have been ransacking the coffers at the expenses of society.”

The Swiss vote, Bloomberg reports, is “raising pressure” on German chancellor Angela Merkel “to adopt her own tougher rules on executive pay,” and European Union ministers have already agreed to limit banker bonuses to no more than the equivalent of one year’s salary, down from the typical five to ten times.

Sign up for To MuchIn France, meanwhile, the government elected last year will be limiting total CEO pay at firms where French taxpayers have a controlling interest to no more than 20 times the pay of the lowest-paid worker.

All this activity has Corporate America starting to get a little nervous. U.S. corporate consulting firms are sending out alerts on the new Euro developments. The “reverberations from the Swiss vote,” notes Harvard analyst Stephen Davis, “could put fresh momentum into shareholder rebellions in the U.S.”

But Americans eager to counter corporate greed really don’t have to look to Europe for inspiration. They need just remember America’s not-so-misty past.

  • JPSnoopington

    Interesting (but not surprising) that the author vaguely quotes “a leading Zurich newspaper” in support of assertions regarding European public opinion. The link provided isn’t much help since it only directs the reader to U.S. based The Nation for a reference to the true source. How convoluted can supporting his own opinion be? Wonder why that is.

    I can be more direct regarding my sources. The Telegraph, published in the U.K., writes about a growing German movement supporting the obvious appeal of withdrawl from the EU and a return to the D-Mark or even an alternative currency among German, Dutch, Austrian, Finish, and perhaps other like-minded nations. The French whose recent policies the author admires so much are not invited to this party.

    Now a basic finance lesson. The real fundamentals for the knowledge needy. Corporate profits arise from revenues (prices charged for what is sold to customers) hopefully exceeding all the expenses incurred to obtain those revenues. Often, a corporation’s largest costs involve compensation paid to individuals for salaries or wages and some form of benefit package. The government also gets its cut on the expense side in the form of income taxes to one degree or another if revenues exceed expenses. Amazingly, if there is some profit left over after all of this, it belongs to the owners of the corporation in proportion to what they have invested in it. They are rightfully called shareholders.

    The right to ownership in the largest corporations is available to any member of the public through institutions called stock exchanges. All one needs is investable money on hand. Participants in the transactions conducted on the exchanges include individuals, professional investors such as mutual funds some individuals choose to use to manage their money, or institutional investors managing retirement assets such as pensions for various union members, public employees, or corporate retirement plans including 401(k) plans.

    Given the financial variables, a corporation faced with higher taxes has only three realistic courses of action. They can raise prices charged to customers, limit increases in salaries or wages or reduce the number of people employed, or reduce the returns to shareholders. Shareholders are ultimately responsible for the compensation of management. They have great flexibility in that regard. If they think management’s compensation is excessive, they can avoid purchasing the stock in the first place. That’s the simplest course of action. If something changes adversely after the investment is made, vote against it at the annual shareholders’ meeting. If you don’t get your way, go back to the exchange and sell your stock because now you realize you have made a mistake. That will teach the greedy SOBs a lesson!

    • allen

      obviously your “solution” isn’t working is it? Just look at the data…

      • JPSnoopington

        You never scored very high on reading comprehension tests did you? I proposed no “solution.” I simply outlined the consequences that can arise for people who advocate that raising corporate taxes might be the answer to whatever goals they might have in mind.

        • allen

          u phukiin fascist , smoke my hog!… u arrogant stupid moron … i’m sick to death of reading your apologetic support for the 1%, i wish they would ban your ass from posting on this site… u bring nothing to the conversation here … go to some right wing hack website and spew your vile phlegm

          • JPSnoopington

            What a coincidence. I happened to be watching “One Flew Over the Cuckoo’s Nest” on ion TELEVISION (punctuation exactly as the network displays onscreen) and during a commercial I read your recent rant. Have you taken your medications today? Perhaps nurse Ratched needs to change your medication for tomorrow. Hope she can help you. Good luck.

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