Note: This op-ed was distributed via the McClatchy-Tribune News Service.
Laurence Fink, the 60-year-old CEO of Wall Street money manager BlackRock Inc., wants the retirement age raised to 70. In one TV interview, he explained that we could all wait a few more years before collecting Social Security because most of us have jobs where we just “sit around.”
Now, everyone is entitled to their opinion – even if it reveals a lack of familiarity with life outside their executive suite. But what makes Fink’s views particularly hard to swallow is that ordinary Americans who rely on government retirement benefits are actually subsidizing his pay.
While the leader of the world’s largest money manager sits around lecturing all of us to tighten our belts, we’re padding his pockets. How can this be?
The current tax code lets corporations deduct from their income taxes unlimited amounts of executive compensation, as long as they say this pay is based on “performance.” As a result, huge companies like BlackRock have an incentive to dole out massive stock options and other so-called “performance” bonuses. In other words, the more they pay Fink and other top executives, the lower their tax burden gets.And the rest of us? We get stuck with the bill.
BlackRock is one of the biggest beneficiaries of this tax break. Between 2009 and 2012, Fink took home $119 million in fully deductible “performance pay.” That translates into a corporate tax break of $42 million. While pocketing this taxpayer-subsidized pay, Fink was so moved by belt-tightening fervor that he joined “Fix the Debt,” a lobby group calling for cuts to Social Security and Medicare.
The Fix the Debt outfit has recruited an army of high-profile CEOs and corporations to carry the message that we must slash spending on our earned-benefit programs or face national economic ruin. Guess what they never mention? That large corporations routinely fatten the nation’s deficit by exploiting the performance pay loophole and other gimmicks to avoid paying taxes.
To get a sense of the size of this little-known corporate tax break, a new study by the Institute for Policy Studies and Campaign for America’s Future looks at the pay practices of the 90 publicly held corporate members of Fix the Debt. What we found is that these firms raked in at least $953 million – and as much as $1.6 billion – from the “performance pay” loophole between 2009 and 2011.
That’s enough to cover the cost of 125,000-210,000 Head Start slots or the salaries of 14,000-23,000 elementary school teachers for a year. The exact windfall will be impossible to compute until Uncle Sam requires all companies to disclose more pay information. If BlackRock CEO Fink gets his way and the retirement age rises to 70, average Americans would see their Social Security and Medicare benefits cut by about 20 percent.
That may be peanuts to someone like Fink, but it could rob millions of a dignified retirement. One in three Americans have no retirement assets of any kind. They’ll need to rely entirely on Social Security during their golden years. Congress could end taxpayer subsidies for excessive executive pay with a simple fix. The tax code already sets a $1 million cap on the deductibility of executive compensation, but the performance-pay loophole renders it meaningless. Scrapping that exemption would eliminate one of the most perverse of all tax loopholes. While they’re at it, our lawmakers should also lower the cap to $500,000.
It’s a good thing that we’re having a debate over national budget priorities. But we don’t need cutbacks that will hurt the poor and the middle class. Instead, let’s end expensive corporate tax breaks like the “performance pay” loophole that deliver no value to the broader society.