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  • Writer's pictureBy The Financial District

Big Chunks Of Corporate Tax Cuts End Up In Executives' Pockets

A new study finds that tax breaks from 2002 to 2020 have given hundreds of billions in personal boodle for corporate royalty and worsened income inequality in the US, Jon Schwarz reported for The Intercept.

Photo Insert: A significant fraction of recent corporate tax breaks simply went to increased pay for top corporate executives.

Schwarz said the lie that tax breaks would usher in investments had been promoted by the Reagan administration, burnished in 2002, and replenished with bigger lies in the American Jobs Creation Act of 2004 and the Tax Cuts and Jobs Act of 2017.

The rhetoric in each instance was the same: Purportedly, these tax cuts were not for the sake of enriching corporate management but for employing American workers — hence the word “jobs” in all three titles.

In reality, a significant fraction of recent corporate tax breaks simply went to increased pay for top corporate executives. The paper is the first comprehensive academic examination of its kind.

Its author, Grinnell College assistant professor of economics Eric Ohrn, used a database of top-level compensation at publicly traded U.S. firms to analyze the tax cuts’ impact on executive pay.

All the news: Business man in suit and tie smiling and reading a newspaper near the financial district.

If Ohrn is correct, the reductions in the corporate income tax over the past two decades will reward America’s corporate royalty with hundreds of billions of dollars between now and 2030.

Ohrn attributes this extraordinary payday to executives’ successful use of “rent-seeking,” an economic concept that describes individual and corporate use of power to capture wealth without adding any new value themselves.

Market & economy: Market economist in suit and tie reading reports and analysing charts in the office located in the financial district.

Ohrn examined the pay of 31,879 executives at 2,794 publicly traded companies from 1998 to 2012. His results showed that for every dollar in reduced corporate taxes from two types of tax cuts, compensation for the top five executives at the companies increased by 15 to 19 cents.

Dean Baker, senior economist at the Center for Economic and Policy Research in Washington, D.C., points out that if the next 20 executives at each company in Ohrn’s study received in aggregate half the increased pay of the top five executives, it would mean that “between 22% and 37% of the money gained from a tax break went to 25 of the highest-paid people in the corporate hierarchy.”

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