‘It’s outrageous that our tax dollars are inflating executive paychecks..’ —Sarah Anderson, an author of the annual “Executive Excess” report

Various tax and accounting loopholes encourage excessive executive pay and allow company chiefs to pay taxes at lower rates than their employees, according to the Institute for Policy Studies and United for a Fair Economy. Taxpayers foot the bill in the form of forgone public revenues, they added in a report released in late August.

“It’s outrageous that our tax dollars are inflating executive paychecks,” said Sarah Anderson, an author of the annual “Executive Excess” report. “Surely in these troubled economic times we can find better ways to spend our nation’s wealth.”

The U.S. government misses out on $10 billion a year in estimated revenues because current rules allow firms paying executives stock options to deduct more than their actual expenses, the report said.

It cited the example of the United Health Group, which it said paid its chief executive, William McGuire, $9 million in stock options. The company claimed a tax deduction of $317.7 million for the compensation, even as it issued financial statements suggesting the arrangement had cost it nothing, according to the report, which drew its information from official sources and media reports.

Other loopholes unavailable to ordinary taxpayers allow executives to defer unlimited amounts of pay, to move earnings to offshore tax havens, and to stash unlimited sums in tax-deferred retirement accounts, according to the report.

It urged politicians to close all the loopholes and to change labor laws to make it easier for workers to bargain collectively for better wages.

Sens. John McCain and Barack Obama have incorporated tirades against corporate excess into their respective campaigns for the U.S. presidency. Neither candidate has endorsed the sweeping changes favored by the report’s authors.

“The bipartisan attacks on runaway pay are encouraging, but if the candidates are serious about change, they should vow to plug every single loophole that allows our tax dollars to flow into the pockets of top business leaders,” Mr. Anderson said.

The report was timed to coincide with the Aug. 25 opening of the Democratic National Convention and to precede the Labor Day holiday and Republican National Convention.

Large U.S. firms paid their chief executive officers an average of $10.5 million in salary, stock options, incentives and bonuses last year—344 times what the average worker earned. The report said this disparity likely will worsen because job growth is mainly concentrated in industries with the widest pay gaps.

The United States has long maintained the industrialized world’s widest pay gaps. CEO compensation swelled from 85 times what workers earned in 1990, to 209 times in 1996 and 419 times in 1999, according to the government’s Bureau of Labor Statistics. It peaked in 2001, at 525 times workers’ average earnings.

CEO pay growth often bears little resemblance to firms’ performance. U.S. bosses’ pay rose 313 percent from 1990 to 2003. By contrast, the Standard & Poor’s 500 stock index rose 242 percent and corporate profits gained 128 percent.

During the same period, average worker pay rose 49 percent, while inflation climbed 41 percent.

Often, the largest increases in pay have gone to CEOs whose companies have laid off the most workers or made the deepest cuts in workers’ pensions, moves designed to boost financial statements and the price of stock, according to previous editions of the “Executive Excess” report, now in its 15th year.

These trends, and a series of corporate financial scandals dating back to around 2000, have motivated investors, regulators and their political overseers to focus their attention on corporate pay.

Labor union-sponsored pension plans and other investors have launched scores of shareholder proposals seeking to moderate or regulate CEO pay. Dozens of these have won majority support. Although shareholder resolutions usually are nonbinding, those that win majority backing have been virtually impossible for companies to disregard.

Even so, presidential and legislative candidates have sought to harness public discontent over CEO pay in the run up to November’s general election. Presidential candidates McCain and Obama have talked up measures that would increase shareholders’ say over bosses’ pay.

However, bills designed to close the loopholes identified in the report have stalled in Congress. The report blamed this on pressure from corporate lobbies. (IPS)