Quick Hit Ellyn Fortino Tuesday June 17th, 2014, 5:21pm

Report: Walmart Received $104 Million Taxpayer Subsidy For Executive Pay

recent report reveals that Walmart raked in taxpayer subsidies totaling $104 million for its executive pay over the past six years at the same time many of the retailer'slowest-paid workers have had to rely on public assistance to meet their basic needs.

Taxpayers subsidized the pay for top Walmart officials due to what critics say is a loophole that allows unlimited corporate tax write-offs on performance-based compensation for executives.

The report, co-published by the Institute for Policy Studies and Americans for Tax Fairness, shows that eight top Walmart executives pulled in more than $298 million in fully deductible performance-based pay between 2009 and 2014, which comes out to be a total tax break for the company estimated at $104 million. Meanwhile, the retailer had revenues of $473 billion and $16 billion in profits in 2013, according to the report issued earlier this month.

Walmart’s recently retired President and CEO Michael Duke, who currently serves as the company's chair of the Executive Committee of the Board of Directors, hauled in nearly $116 million in performance-based pay between 2009 and 2014, the most out of the eight company executives cited in the report. Duke's performance-based pay reduced Walmart's IRS bills by an estimated $40 million, according to the report. Duke was Walmart's president and CEO from 2009 to January 31, 2014, when he retired. He was replaced by Doug McMillon, a former Walmart executive vice president.

"We know that American families are struggling to make ends meet," stressed Linda Haluska, a full-time Walmart employee in Glenwood, Illinois of more than eight years. "It makes no sense that the nation’s largest corporation, owned by the nation’s richest family, is asking taxpayers to subsidize their low-wage model. While most Walmart workers make less than $25,000 [a] year, the Walton family has more wealth than 42 percent of American families combined. Why in the world should taxpayers subsidize this kind of greed?” 

The so-called "performance pay loophole" dates back to 1993. That's when Congress limited the deductibility of certain executive pay to $1 million in response to various company practices, including big CEO severance, or "golden parachute," agreements. The law carved out an exception, however, for performance-based pay, such as stock options, non-equity incentive plans and stock appreciation rights, as part of Section 162(m) of the Internal Revenue Code. Currently, unlimited amounts can be deducted from corporations’ federal income taxes for costs associated with performance-based executive pay.

Due to the law, companies have shifted more executive compensation packages to meet the performance-based exception as a way to pay less federal taxes. Essentially, this practice leaves ordinary taxpayers on the hook for the lost tax revenue.

The aim of the 1993 law was for corporate executives to be paid based on the value they added to their company, but the report notes that there have been "disconnects between performance pay metrics and corporate performance."

"Walmart is a case in point," the report states. "This year the company 'replaced a crucial metric for assessing executives’ performance,' according to the The New York Times. This helped executives meet their bonus benchmarks—and helped Walmart obtain their 'performance pay' tax subsidy."  

Walmart essentially "gamed the system," said Frank Clemente, executive director of Americans for Tax Fairness.

"They were not meeting the performance targets to get the bonuses — the targets established by the board itself — [and] went ahead and made an adjustment to the way it was doing its calculation last year" so executives would get their bonuses, he said.

In addition to Walmart, many large fast food companies and other firms also take advantage of unlimited corporate tax write-offs on performance-based pay for executives, a practice that leaves U.S. taxpayers with an estimated $5 billion tab each year.

At the same time, U.S. taxpayers are also footing the bill for many low-wage workers at large corporations who are forced to seek public aid to supplement their low wages and lack of benefits.

"The irony for us, a lot of the workers at the bottom are getting subsidized by taxpayers because the big companies are not paying enough in wages and benefits, so they get some help from the government in order to get by," Clemente said. "What's ironic is everybody else, all us taxpayers, are subsidizing the high pay, the bonuses for these CEOs that are running these big companies, which are paying lousy wages to their workers."

Walmart has about 1.3 million employees nationally, but 825,000 of them reportedly make less than $25,000 a year, forcing many workers to rely on various forms of public assistance in order to make ends meet.

It costs U.S. taxpayers approximately $6.2 billion per year to cover public aid expenses for Walmart workers, shows a separate report put out by Americans for Tax Fairness in April. That figure is based on a May congressional report prepared for the U.S. House Committee on Education and the Workforce, which found that one 300-person Walmart Supercenter store in Wisconsin likely costs taxpayers more than $900,000 annually in government assistance costs for its workers.

Walmart, however, disputes that $6.2 billion number. 

"The study issued in April by the Americans for Tax Fairness relies on positions that are inaccurate," said company spokesman Randy Hargrove in a statement to Progress Illinois. "Specifically, the report cites $6.2 billion in public assistance for Walmart associates, and the calculations used to get to that figure are wrong. The Americans for Tax Fairness study took inaccurate information from one Wisconsin study to extrapolate it out to report even more inaccurate information. In fact, the authors of the Wisconsin study admit you can’t take their methodology and apply it any broader."

Hargrove called Americans for Tax Fairness' previous report "flawed" and "based on promoting their agenda rather than on the facts."
"Unlike some companies, Walmart pays billions of dollars a year in U.S. federal, state and local taxes, helping to fund education, public safety, and infrastructure improvements in the communities where we operate," Hargrove said in response to the new report about performance-based executive pay. "Walmart is a pay for performance company.  Our executive compensation program has been developed in the same way as other companies across America, and it complies with the federal tax laws."
"The bottom line is Walmart provides associates with more opportunities for career growth and greater economic security for their families than other companies in America," he added. "Our full- and part-time workers get bonuses for store performance, access to a 401K-retirement plan, education and health benefits. Walmart provides opportunity for associate advancement. Walmart promoted more than 170,000 associates during the last fiscal year, and 40 percent of those associates promoted were in their first year with the company."
Walmart worker Haluska said "it isn’t right" that the giant retailer made $16 billion in profits last year, yet taxpayers "are subsidizing Walmart to the tune of estimated billions of dollars a year and many Walmart workers have to choose between paying rent and putting food on the table."
"I’m so glad that reports like this [from the Institute for Policy Studies and Americans for Tax Fairness] are helping more Americans understand that the Walmart economy hurts everyone," she said. 
The increased public scrutiny about how taxpayers are subsidizing big firms, including Walmart, shows that ordinary citizens have "become highly sensitive to how unequal things have become in America," Clemente said.
He noted that top U.S. CEOs earned 296 times more than the typical American worker last year, according to a study issued last week by the Economic Policy Institute. By comparison, the 2012 CEO-to-worker compensation ratio was 278-to-1. Back in 1965, the ratio was only 20-to-1. Overall, the average compensation for top U.S. CEOs was $15.2 million in 2013, according to the Economic Policy Institute. 

"The wages of low and middle income workers have been flat for decades now, barely even keeping place with inflation," Clemente said. "We see corporate profits at record levels. We see CEO compensation at record levels. They're all benefitting from economic growth and productivity and none of the benefits is coming to average workers. I think we've become especially agitated when we learn that not only are they not sharing the wealth, but we're also subsidizing their wealth. We're subsidizing it through this tax loophole for CEO pay. We're subsidizing it because the corporations that are paying wages that are too low, their workers are having to go get public assistance ... in order to survive."

The report calls on Congress to end taxpayer subsidies for "excessive executive pay."

Democrats in Congress have introduced bills that look to close the performance pay loophole for top executives, but the idea has failed to pick up steam among federal lawmakers.

Back in August, U.S. Sens. Jack Reed (D-RI) and Richard Blumenthal (D-CT) introduced the Stop Subsidizing Multimillion Dollar Corporate Bonuses Act, S. 1476. Under the proposed measure, publicly traded corporations would be allowed to deduct only up to $1 million in combined performance-based and salary pay per employee. The Joint Committee on Taxation projected that the legislation would bring in $50 billion in tax revenue over a 10-year period. U.S. Rep. Lloyd Doggett (D-TX,35) introduced a companion bill in the House, HR 3970, in January.

Last year, U.S. Rep. Barbara Lee (D-CA,13) introduced another related measure, the Income Equity Act, H.R. 199. The bill would deny employers a tax deduction on compensation payments to any full-time employee that is greater than 25 times the pay of a firm’s lowest-paid worker or $500,000, whichever is larger.

Although stopping unlimited corporate tax write-offs on CEO performance-based pay may be a popular idea in some circles, Clemente said it remains to be seen whether Congress will actually take up the issue.

"There's much more knowledge out there, much more awareness, much more activity by organizations and increased interest by members of Congress," he said of closing the corporate tax loophole. "But we'll see."


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