Taxpayers Hit Twice by Fast-Food Pay Practices

http://www.thefiscaltimes.com/Columns/2014/04/22/Taxpayers-Hit-Twice-Fast-Food-Restaurant-Pay-Practices-Report

April 22, 2014
By Suzanne McGee,The Fiscal Times

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In a scathing analysis, the progressive Institute for Policy Studies has calculated that a law allowing corporations to deduct executives’ stock options and other so-called “performance pay” from their income taxes, without limits, costs taxpayers some $232 million in the last two years — based on just 20 large companies in the restaurant industry.

At the same time, the new report notes, large restaurant chains often pay their low-level workers "so little that many of them must rely on Medicaid and other taxpayer-funded anti-poverty programs." The Institute for Policy Studies says the 20 companies in its report are all members of the National Restaurant Association, which is fighting efforts to raise the minimum wage.

What the Institute for Policy Studies calls a “loophole” actually stems from changes to the tax code dating back to 1993. Congress, seeking to rein in executive pay, capped tax deductibility of cash payments at $1 million — but allowed for unlimited deductions for performance-based pay. That's opened the door to the explosion in use of stock option grants as the main source of executive compensation in the 1990s.

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Starbucks and CEO Howard Schultz benefited far more, though. Chairman and CEO Howard Schultz received $236 million in exercised stock options and other kinds of performance pay in the two-year period that the Institute for Policy Studies surveyed. That enabled Starbucks to cut its IRS bill by $82 million — "enough to raise the pay for 30,507 baristas to $10.10 per hour for a year of full-time work," the report says.