Op-Ed, 578 words

Fast Food Giants Gorge on Subsidies

Sarah Anderson

The fast food industry is notorious for handing out lean paychecks to their burger flippers and fat ones to their CEOs. What’s less well-known is that taxpayers are actually subsidizing fast food incomes at both the bottom — and top — of the industry.

Take, for example, Yum Brands, which operates the Taco Bell, KFC, and Pizza Hut chains. Wages for the corporation’s nearly 380,000 U.S. workers are so low that many of them have to turn to taxpayer-funded anti-poverty programs just to get by. The National Employment Law Project estimates that Yum Brands’ workers draw nearly $650 million in Medicaid and other public assistance annually.

Meanwhile, at the top end of the company’s pay ladder, CEO David Novak pocketed $94 million over the years 2011 and 2012 in stock options gains, bonuses and other so-called “performance pay.” That was a nice windfall for him, but a big burden for the rest of us taxpayers.

Under the current tax code, corporations can deduct unlimited amounts of such “performance pay” from their federal income taxes. In other words, the more corporations pay their CEO, the lower their tax burden. Novak’s $94 million payout, for example, lowered Yum’s IRS bill by $33 million. Guess who makes up the difference?

fast food ceos

Fast Food CEOs Rake in Taxpayer-Subsidized Pay

My new Institute for Policy Studies report calculates the cost to taxpayers of this “performance pay” loophole at all of the top six publicly held fast food chains — McDonald’s, Yum, Wendy’s, Burger King, Domino’s, and Dunkin’ Brands.

Combined, these firms’ CEOs pocketed more than $183 million in fully deductible “performance pay” in 2011 and 2012, lowering their companies’ IRS bills by an estimated $64 million. To put that figure in perspective, it would be enough to cover the average cost of food stamps for 40,000 American families for a year.

After Yum, McDonald’s received the second-largest government handout for their executive pay. James Skinner, as CEO in 2011 and the first half of 2012, pocketed $31 million in exercised stock options and other fully deductible “performance pay.” Incoming CEO Donald Thompson took in $10 million in performance pay in his first six months on the job. Skinner and Thompson’s combined performance pay translates into a $14 million taxpayer subsidy for McDonald’s.

What makes all this even more galling is that these fast food giants are pocketing massive taxpayer subsidies for their CEO pay while fighting to keep their workers’ wages at rock bottom. All of the big fast food corporations are members of the National Restaurant Association, which is aggressively working to block a raise in the federal minimum wage to a level that would let millions of fast food workers make ends meet without public support.

There’s an easy solution to the perverse “performance pay” loophole. A bill introduced by Senators Jack Reed (D-RI) and Richard Blumenthal (D-CT) would simply set a firm $1 million cap for executive pay deductions — with no exceptions. Corporations could still pay their CEOs whatever they choose, but at least taxpayers wouldn’t be subsidizing anything above $1 million. The Joint Committee on Taxation estimates this legislation would generate more than $50 billion over 10 years.

It makes no sense for employees of highly profitable giant corporations to have to rely on government assistance for basic needs. It makes even less sense for ordinary taxpayers to subsidize the CEOs who are benefiting most from the fast food industry’s low-road business model.

With Congress again mulling deficit-reduction strategies, it’s high time that Washington stopped letting fast food giants gorge on both of these absurd subsidies.

Sarah Anderson directs the Global Economy Project at the Institute for Policy Studies and is the author of the new report Fast Food CEOs Rake in Taxpayer-Funded Pay. IPS-dc.org
Distributed via OtherWords (OtherWords.org)

  • Johnny Dollar

    Immaterial as well as irrelevant. $50 billion over 10 years is $5 billion per year as any third grader should be able to figure out. The federal government spends more than that in one day. All compensation deductible on a corporate return is reported to the IRS and, in turn, is reported as income by the employee. Doesn’t matter if you’re the CEO or the “burger flipper.”

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  • Disgusted

    I love to see Liberals who are constantly trying to find more of the peoples money to spend miss-use adjectives like “loop holes” to disguise their desire to raise more tax revenue that they can waste. Every cost of doing business including hourly wages and salaries for management is deductible as a cost of doing business. The writer of this article is trying to arbitrarily limit executive compensation in order to raise taxes. Taxpayers are in no way subsidizing executive compensation, but in the eyes of the redistribute’rs, it is lost tax revenue that they want to get their hands on!

  • Tango3

    Amazing. The two commenters prior to this expound on the sins of the ‘government’ taking more and re-distributing, the fact that any monies paid in salary are deductible by the corporation, and this entire piece amounts to a taking from the rich to give to the poor. Could either sound any more greedy, self-serving, or entitled?

    First of all, we know where the ‘poverty line’ is. When you break that down by 2,000 which is the number of hours a person works in a year as a full-time employee or by 2,080 if they get two weeks of vacation, we know how much they should make per hour to stay off public assistance. Why not just deduct that off the bottom line tax bill as well and from the CEO compensation package as well to help the government reduce costs by keeping those people OFF public assistance? Then give the CEO the balance of whatever is left.

    Second, of the executive compensation, how much is ‘earned’ and ‘unearned’ income? Since we all know by now, thanks to Mitt Romney, that those two income streams are taxed a different rates. ‘unearned’ income, such as that from stock sales and dividends, are taxed at a lower rate; to encourage investment. I wonder if the burger flipper has checked their portfolio lately?

    Lastly, both avoid the impetus of the article. The concentration of pay in one aspect and the lack of it in another. How that money that could be used to boost worker pay to a level to keep them above poverty and off government welfare rolls is paid instead to someone who needs the money like I need another hole in my head. Sure, that’s not for government to decide; you’re right. But let’s discourage wanton personal greed of the few at the cost of the many.

    It’s time the corporate tax rate went back to 91% and the median rate for those that make over $250,000 to go to 57%. It’s time that every American company that off-shored jobs from the U.S. to China or other places to avoid labor costs be charged an import tariff of no less than 500% of the retail value of every item they import. Unless of course they come back to the U.S. and open the factories they shut down and employ people back at a rate they were making before off-shoring. I want to be fair.

    It’s time we as a people opened our eyes and see that corporations do not make up this nation. The most hallowed and quoted document referred to by the conservative mouthpieces world-wide, The U.S. Constitution, does not open with the line, “We the Corporations… .” It’s time corporations were stripped of their power in politics and governance. They have proven themselves, like many of our politicians, unworthy of the trust and power given to them.

    You wrote a very telling article Sarah. There needs to be more exposure like this.

    • Johnny Dollar

      “Could either sound any more greedy, self-serving, or entitled?”

      Good for you. You have learned the typical lib response to points you can’t refute. Throw out a couple of cliche adjectives, then follow up with nonsense some might believe is pertinent to the points made. Well done. Just one problem – I don’t know how the verb entitled enters the picture. There hasn’t been a day in my life I’ve felt entitled to anything.

      But you do remain successful I must concede as you ramble on with increasingly amusing commentary. Especially when you get to your proposed solutions. Very entertaining stuff.

      • Tango3

        I’m delighted you are entertained. I likewise see that you have the critiques from Fox News memorized chapter and verse…not that you have a solution or response to rebutt with, just a whole lot of criticism and why this or that won’t work.

        What point needs refuting? That the IRS taxes individual income? Ya think? The condescension dripping off of what you stated initially leads one to the rational inference of your feeling of not only entitlement, but superiority.

        I likewise have never felt entitled to anything I didn’t earn. And I never took anything from anyone that wasn’t earned or took for myself to the detriment of someone else.

        • Johnny Dollar

          Bravo! You even managed to pull the “Fox News” cliche out of your bag of responses. Well done. Your inference skills need a little improvement though. In that regard, you remind me of Barney Fife.

          • Tango3

            Yep it’s amazing. You worked cliche in again and trivialized without saying anything constructive. An exceptional one track mind you have.

          • Johnny Dollar

            “…one track mind?” Your inference skills have just been downgraded from in need of improvement to downright unsatisfactory. In the last 39 days alone I have played horses from Santa Anita and Hollywood Park in CA to Aqueduct in NYC, Woodbine in Toronto, and Delta Downs near New Orleans. Not to mention many other places in between.

            Dirt, turf and synthetic surfaces, Fillies, mares, colts and geldings. And you say I have a “one track mind”?

          • Tango3

            Good for you! You can probably get help for your addiction if you look hard enough. As far as my inference skills, there seems to be nothing wrong with them. You have proven yourself precisely what I surmised you to be. Of course, I didn’t have you sized up to be that low; Oops.

            And once again, you contribute nothing but criticism and sarcasm and have completely vacated the original premise. How superior of you, track star.

          • Johnny Dollar

            Yes, you are a real “Carnac the Magnificent” alright. At least in your own mind. I suppose that’s all that matters. I’ve had enough entertainment here and will now be moving on to different entertainment. Too much of a good thing can be taxing (Mae West).

            Never did get an explanation why the income of a certain very small set of individuals should be targeted for taxation on two different tax returns. Since the argument never made sense in the first place, I did not expect a coherent one anyway.

          • Tango3

            Toodles! Maybe, one day, you’ll be able to figure it out for yourself. But, bless your heart, I doubt it since your focus doesn’t pass beyond the tip of your own nose.