USA Today published a story last week entitled “20 big profitable companies paid no taxes.” Using data provided by S&P Capital IQ, the newspaper identified 20 firms that paid no federal taxes in the second quarter of this year despite reporting $4.4 billion in second quarter profits. Collectively, these 20 CEOs were paid $240 million by the corporations they lead, an average of $12 million per CEO.

Because CEO pay is in most cases fully tax deductible as a normal business expense on corporate tax returns, these 20 companies saved as much as $84 million on their annual tax bills last year simply because they paid their CEOs so much. Sens. Jack Reed (D-RI) and Richard Blumenthal (D-CT ) have introduced the Stop Subsidizing Multi-Million Dollar Corporate Bonuses Act (S. 1476), which would cap CEO pay deductions at $1 million per executive and raise more $50 billion in additional revenue over the next decade. Had this bill been law last year, these 20 tax-dodging firms would have received $77 million less in public subsidies for their CEO pay.

Half of the companies identified by USA Today are Real Estate Investment Trust (REITs), a designation that allows these corporations to escape federal corporate income taxes so long as their shareholders report their share of corporate profit on their individual income tax returns. USA Today notes that this attractive tax deal is “one reason this corporate structure is getting more popular.” 

Historically, REITs have been limited to portfolios containing properties like office buildings, shopping centers, hotels, and private prisons, but new rulings by the U.S. Treasury last May greatly expanded this tax loophole. The rulings allow telecommunications company assets – like cell towers and phone networks – to be considered REITs, and some analysts think solar energy farms will be quick to follow.

Two of the firms on USA Today’s list, Eaton Corporation and Seagate Technologies, are firms that abandoned their U.S. registrations for new corporate papers in offshore tax havens. This practice, known as corporate inversion, became front-page news after drug retailer Walgreens announced it was considering such a move. Walgreens abandoned its plans after a powerful consumer backlash and a courageous public rebuke from Sen. Dick Durbin (D-IL), who represents the company's home state of Illinois.

When corporations pay one person more than they pay our federal government for the myriad of taxpayer-funded services that their businesses depend on, it is a sign of just how broken both the tax system and the system of executive compensation are. No profitable corporation should get all the services the federal government provides for free. We should start by closing the loophole that generates huge tax breaks for those that lavishly fill their executives’ pockets.  

* = Inverted corporation – abandoned U.S. registration for one in foreign tax haven
# = Real Estate Investment Trust (REIT)

Sources: Profit data: “20 big, profitable companies paid no taxes” USA Today. The author corrected one typo in the article, Crown Castle’s net income. CEO pay data: with the exception of News Corp., all pay data come from most recent proxy statement filed by the company with the U.S. Securities and Exchange Commission as of Aug 13, 2014. News Corp. did not file a proxy statement with the SEC; its pay data for comes from Forbes.com.