Do You Mind Big CEO Paychecks? Because You’re Helping Pay Them

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The U.S. tax code lets businesses deduct billions of dollars for executive compensation. Two senators want that to stop. What do you think?

The average American CEO made more than 500 times the average employee in 2011, we recently wrote. And guess what? You helped pay for it.

The federal tax code allows corporations to deduct up to $1 million for executive pay and as much as they want for performance pay and CEO bonuses, nonprofit Public Citizen says. “Partly due to this, bonus pay has become a significant driver of excessive corporate executive pay,” it says.

That seems to be the case for last year’s best-paid Wall Street CEO, Goldman Sachs’ Lloyd Blankfein. He took home a $2 million salary and a nearly $19 million bonus, CNNMoney says.

While that’s not exactly a common size for bonuses, they do add up. Executive compensation tax breaks cost the federal government $30.4 billion in revenue between 2007 and 2010, according to the Economic Policy Institute.

Two U.S. senators are looking to close that expensive loophole. Sens. Jack Reed, D-R.I., and Richard Blumenthal, D-Conn., have introduced the Stop Subsidizing Multimillion Dollar Corporate Bonuses Act.

Separately, a forthcoming Securities and Exchange Commission rule will require public companies to disclose the difference between how much they pay the CEO and the average company employee, The Hill says. Business groups oppose the requirement because, they say, investors don’t care and it could cost time and money to do the math. (But not because it demonstrates gross inequality, right?)

While the Corporate Bonuses Act may or may not pass, the pay ratio rule should definitely happen because it was part of the financial reform package passed in 2010, The Hill says.

“There’s no reason top executives should get a tax subsidy from the rest of us simply because the entire stock market has done well,” former Labor Secretary Robert Reich recently wrote in The Baltimore Sun. “You and I and other taxpayers are also being ripped off.”

How do you feel about this tax break for CEO compensation? Let us know your thoughts on Facebook.

Stacy Johnson

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