Big Chunks of Corporate Tax Cuts End up in Executives’ Pockets

“THIS NEW LAW will provide tax incentives for companies to expand and create jobs by investing in plants and equipment,” proclaimed President George W. Bush in 2002 as he signed the Job Creation and Worker Assistance Act. “This measure will mean more job opportunities for workers in every part of our country.”

As Bush promised, the bill included significant corporate tax cuts. Further reductions in corporate taxes would follow with 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. These companies would take the extra money and invest it in the workforce, creating new and better opportunities for regular people.

That is not what happened. In reality, a new academic study finds, a significant fraction of recent corporate tax breaks simply went to increased pay for top corporate executives. The paper, currently undergoing peer review before publication, 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.