Quick Hit Ellyn Fortino Friday December 20th, 2013, 11:42am

New Report Sheds Light On Taxpayer Subsidies For Fast Food CEO Pay

recent report from the Institute for Policy Studies (IPS) reveals that fast food companies have been pulling in large taxpayer subsidies for CEO pay at the same time many of the firms' lowest-paid workers have had to rely on public assistance to help cover their basic needs.

Taxpayers have been subsidizing CEO pay for fast food companies and other firms due to a loophole that allows unlimited corporate tax write-offs on performance-based compensation for top executives.

From 2011 through 2012, CEOs of the top six publicly held fast food companies, including McDonald's, Yum! Brands, Wendy's, Burger King, Domino's and Dunkin' Brands, hauled in a collective $183 million in fully deductible performance pay, which comes out to be a total tax break valued at $64 million, according to the report.

The so-called "performance pay" loophole in the current corporate tax law first started in 1993 when Congress limited the deductibility of certain executive pay to $1 million. But the law provided an exception 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. This practice essentially leaves ordinary taxpayers on the hook for the lost tax revenue.

Yum! Brands, the owner of Taco Bell, KFC, and Pizza Hut, saw the largest taxpayer subsidy for its CEO's performance pay over the past two years, the report found. The company paid its CEO David Novak a total of $94 million in performance-based compensation during 2011 and 2012, reducing the Yum! Brands' IRS bills by an estimated $33 million.

According to the report, the second-biggest tax break over the past two years went to McDonald's. Former McDonald's CEO James Skinner earned a total of $31 million in performance pay in 2011 and the first half of 2012. Current McDonald's CEO Donald Thompson raked in $10 million in performance pay during his first six months as the fast food giant's top executive. Over the past two years, the combined performance-pay corporate tax break for McDonald's was valued at about $14 million.

But everyday taxpayers are not only footing the bill for excessive CEO pay. They are also subsidizing the fast food giants' "low-road business model," the report reads.

Many fast food employees earn what have been dubbed "poverty wages," and just 13 percent of the industry's jobs provide health benefits. To help supplement their low wages and lack of benefits, more than half of America's front-line fast food workers rely on at least one public aid program, which costs taxpayers nearly $7 billion annually, according to an October report from the University of California at Berkeley.

In Illinois, 51 percent of fast food workers rely on some form of public aid to help cover basic necessities, leaving taxpayers in the state with a $368 million tab each year, the report found.

Of all the fast food corporations, McDonald's shifts the most public assistance costs for its employees onto U.S. taxpayers to the tune of $1.2 billion every year. YUM! Brands, Subway, Burger King and Wendy's joined McDonald's to round off the top five fast food companies that force their workers to tap public aid due to low wages.

"They're exploiting workers, and they're exploiting taxpayers," Sarah Anderson, who authored the IPS report, said during a recent interview with Democracy Now! "It is completely absurd to have highly-profitable corporations steering their workers towards public assistance instead of paying them the wages that they need to make ends meet, and they're doing it ... at both the bottom and the top end. They're taking taxpayer money to prop up this ridiculous business model that is based on exploiting the rest of us taxpayers."

Earlier this month, front-line fast food workers in Chicago and across the country hit the picket lines and participated in various actions to continue their push against the low wages paid by the multi-billion dollar industry. The workers have been fighting for a $15 minimum wage and the right to form a union without retaliation. Retail employees have also joined the effort.

"While fast-food workers are paid so little they can't even keep a roof over their heads and put food on the table without public assistance, profitable fast-food companies are relying on taxpayers to pick up the slack for their low wages," said Deivid Rojas, spokesman for the Workers Organizing Committee of Chicago, which represents the fast food and retail employees that have gone on strike in the Windy City. "On top of that, these companies are taking advantage of tax loopholes to write off massive CEO compensations, further maximizing record profits on the backs of taxpayers and low-wage workers. It's clear that fast-food corporations can afford to pay their workers $15 an hour, and that's exactly what they should do to get our economy going again."

Meanwhile, federal legislation that looks to help close the performance pay loophole for top executives hasn't gained much traction in Congress.

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. Sens. Ed Markey (D-MA), Bernie Sanders (I-VT), Elizabeth Warren (D-MA) and Sheldon Whitehouse (D-RI) have also co-sponsored the bill thus far.

U.S. Rep. Barbara Lee (D-CA,13) introduced a related measure in the House back in January, the Income Equity Act, H.R. 199. The measure 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. The bill only has three co-sponsors, including U.S. Reps. John Conyers (D-MI,13) Keith Ellison (D-MN,5) and Illinois' Jan Schakowsky, a Democrat from the 9th Congressional District. 

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