The French aristocracy of the late 1700s paid no taxes. The Bourbon monarchs believed that taxes were only for the little people.
Today’s U.S. business aristocrats are little different.
Top executives benefit from numerous tax loopholes that allow them to avoid paying their fair share. And when they get away with that, the rest of us taxpayers get stuck with the bill.
According to calculations by the Institute for Policy Studies, ordinary taxpayers subsidize bloated executive pay to the tune of over $20 billion a year.
The most outrageous of these executive-friendly loopholes benefit gazillionaire private equity and hedge fund managers. Last year, five of these modern-day aristocrats made more than $1 billion each. Dozens more made in the hundreds of millions.
These guys hardly seem in need of our support. But they get it in at least two ways.
First, their compensation is taxed at a lower rate than many far less elite citizens. That’s because a large piece of their pay comes through a share of their fund’s profit, which is taxed at the 15 percent capital gains rate rather than the 35 percent rate that would apply to ordinary income.
That particular loophole costs the rest of us $2.7 billion per year, according to congressional research.
Second, these guys stash boatloads of pay in deferred compensation accounts in tax havens like the Cayman Islands and Bermuda.
How does that affect the rest of us? Ordinary Americans have strict limits on how much they can set aside in 401(k) plans — $15,500 max per year for most workers. But hedge fund executives can funnel unlimited amounts into these offshore accounts, where their dollars grow and grow, untaxed, until they start withdrawing from them.
The estimated cost of this tax loophole: more than $2 billion annually.
“The New York Times” has reported that executives of one hedge fund, Citadel, have deferred more than $1.7 billion in offshore accounts since the fund was founded in 1990. Citadel head Kenneth Griffin doesn’t even try to avoid comparisons with the French royals. He chose Versailles, the home of King Louis XVI and Marie Antoinette, as the site of his wedding.
Nobody has ever asked average Americans if they want their tax dollars to be used helping the country’s top business executives become phenomenally wealthy. These loopholes are the work of crafty lawyers who have distorted our tax code for the benefit of a few.
In France, citizens eventually picked up their pitchforks and put an end to aristocratic abuses. We need a movement in this country to demand that Congress eliminate subsidies for excessive pay.
It’s high time that ordinary Americans stop footing the bill for our own corporate aristocracy.
Sarah Anderson is a co-author 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 – www.ips.org. Distributed by MinutemanMedia.org