5 Charts on Our Broken CEO Pay and Corporate Tax Systems

Want to know just how bad the problems of corporate tax dodging and excessive executive pay have gotten? 

In a new report, the Institute for Policy Studies and Americans for Tax Fairness analyze executive pay data for some of the country’s most notorious corporate tax dodgers over the period 2018-22. What did we find? Thirty-five of these firms actually paid less in federal income taxes than they paid their top five executives — despite reporting strong profits. 

This chart looks at the 10 firms in that group of 35 that shelled out the most in executive compensation. As you can see, they include many household names, such as Tesla, T-Mobile, Netflix, and Ford. 

How did things get so wildly out of control? 

Big corporations have used their enormous economic and political power to push Congress to slash rates and blow huge loopholes in our tax code. They get to fleece Uncle Sam and the rest of us get stuck with the bill. 

According to Americans for Tax Fairness analysis of Bureau of Economic Analysis data, the effective corporate tax rate — what firms actually pay as a percentage of their earnings — in the middle of the last century was around 50 percent to 54 percent when including state and local taxes as well. As of 2022, the corporate rate was just 17 percent. 

Another damning indicator of our broken corporate tax system: the disconnect between profits and tax revenue. For decades, corporate profits as a share of the economy have been generally rising. Higher profits should lead to higher tax revenue, but they have not. Instead, according to Bureau of Economic Analysis data, the gap between U.S. corporate profits and corporate taxes as a share of GDP doubled between 1980 and 2022. 

Corporate tax dodging and excessive executive pay are interrelated problems

CEOs have a personal incentive for hiring armies of lobbyists to push for corporate tax cuts. Why? Because the windfalls from those cuts often wind up in their own pockets. It’s hardly surprising that as corporate contributions to federal tax revenue have plummeted, CEO pay has skyrocketed, leaving typical worker pay far behind. 

According to Institute for Policy Studies analysis of Office of Management and Budget and Economic Policy Institute data, when corporate taxes made up 21.8 percent of all federal revenue in 1965, the average CEO-to-median worker pay ratio was 21 to 1. By 2022, corporate tax receipts had fallen to just 8.7 percent of federal revenue and the average pay ratio had risen to 344 to 1.

In the immediate aftermath of the 2017 tax law, America’s largest corporations used windfalls from this legislation to boost executive paychecks through a record-breaking stock buyback spree. Stock buybacks artificially inflate the value of a company’s shares – and the value of the stock-based pay that makes up the bulk of executive compensation packages. 

In 2018, the first year of the Trump-GOP tax cuts, S&P 500 firms plowed $806 billion into stock buybacks, a massive jump from $519 billion in 2017. And buyback spending has stayed sky-high every year except the first year of the pandemic.

Ordinary Americans are getting cheated twice. Corporate tax dodging deprives the nation of billions of dollars in revenue that could be used to improve public infrastructure and services. At the same time, exorbitant executive pay siphons money from worker wages, R&D, and other productive investments to support a strong economy. 

See our full report for ideas on how to make corporations pay their fair share of taxes. The Institute for Policy Studies has also co-published with the Congressional Progressive Caucus Center a summary of practical proposals for reining in CEO pay, from tax and contracting reforms to stronger regulations on stock buybacks and Wall Street bonuses. 

Until we fix our tax and executive pay systems, we’ll never have an economy that works for all of us.