Once Upon a Time, Corporations Paid Taxes

Hell, they paid more in taxes just a decade ago (before US infrastructure and education went off the cliff for good), but it seems like much longer a time frame, doesn't it?

Remember which President began that decade of tax cuts after a stolen election?

Imagine how amusing essays like the following one are to those who wield power so effectively that they could have radically changed our tax structure in so few years (with so little national cognizance).

Once Upon a Time, Corporations Paid Taxes

Posted By Sam On March 10, 2013

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

By Sam Pizzigati

^[1]
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 ^[2], 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 ^[3], 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 ^[4] 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 ^[5] 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 ^[6] on average only 12.1 percent of their earnings in taxes. That same year, adds ^[7]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 ^[8] 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 ^[9] 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 ^[10], 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 ^[11], 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 ^[12], 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 ^[13].”

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 ^[14], reflects a deep-seated public sense “that company managers have been ransacking the coffers at the expenses of society.”

The Swiss vote, Bloomberg reports ^[15], is “raising pressure” on German chancellor Angela Merkel “to adopt her own tougher rules on executive pay,” and European Union ministers have already agreed ^[16] to limit banker bonuses to no more than the equivalent of one year’s salary, down from the typical five to ten times.^[17]

In France, meanwhile, the government elected last year will be limiting ^[18] 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 ^[19] has Corporate America starting to get a little nervous. U.S. corporate consulting firms are sending out ^[20] alerts on the new Euro developments. The “reverberations from the Swiss vote,” notes ^[21] 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.

(Veteran labor journalist Sam Pizzigati, an Institute for Policy Studies associate fellow, writes widely about inequality. His latest book, The Rich Don’t Always Win: The Forgotten Triumph over Plutocracy that Created the American Middle Class ^[22], has just been published.)