Major companies haven't paid federal income tax in 5 years. How could that be?

Dozens of large corporations paid more money to their top executives than they shelled out in federal taxes between 2018 and 2022, according to a new watchdog report.

The analysis names 35 corporations, including Tesla, Netflix and Ford, that each reportedly spent more on compensation to their five highest-paid executives than they paid in federal income taxes over five years.

Collectively, the 35 corporations spent $9.5 billion on their top executives over that span, the report said, while their combined federal tax bill came to – $1.8 billion: a collective refund.

The report, released Wednesday, is titled “More for Them, Less for US: Corporations That Pay Their Executives More Than Uncle Sam.” It comes from the Institute for Policy Studies, a nonprofit, left-leaning think tank, and Americans for Tax Fairness, a nonprofit advocating for progressive tax reform.

“Lavish corporate compensation packages and inadequate corporate tax payments are not unrelated phenomena,” the report states.

Corporate boards “have more money to spend on their highest-paid employees when they don’t have much or anything to pay in taxes. Until this self-reinforcing cycle is broken, we’ll have a corporate tax and governance system that works for top executives – and no one else.”

Netflix, for example, paid its five top executives $652 million between 2018 and 2022, the report says, while paying only $236 million in cumulative federal income tax in the same years.

In response, the streaming company said, “Netflix complies with tax laws and regulations in the US and around the world. From 2018-2022 we paid global income taxes in excess of $2B and in 2023 we paid nearly $1.2B in global income taxes, the majority of which was US federal income tax.”

Another firm targeted in the report is FirstEnergy, the electric utility. According to the watchdog groups, FirstEnergy paid $121 million in executive compensation over five years, compared with $44 million in federal income tax, a net refund.

FirstEnergy responded with a prepared statement.

"FirstEnergy pays taxes in compliance with federal, state and local tax laws. In addition to federal taxes, the company pays hundreds of millions in state, local and payroll taxes every year," it said.

The company said its executive pay programs are "carefully designed to attract, retain, focus and reward our talented and diverse executive team," and that shareholders overwhelmingly support the firm's compensation structure.

The report also names Duke Energy, saying the firm paid $181 million to top executives over five years, compared with $1.2 billion in federal income taxes, a net refund.

In response, the company said, "Duke Energy fully complies with federal and state tax laws as part of our efforts to make investments that will benefit our customers and communities. Duke Energy has a deferred tax balance – this does not mean Duke Energy is not paying these taxes, it means that our taxes are due in future years, and we will pay them. We have approximately $10.6 billion in deferred tax liabilities related to investments in the energy system on behalf of our customers."

The utility said it is investing private capital in "our nation’s critical energy infrastructure," a corporate practice incentivized by the current federal tax code.

"It’s also important to note that at the state and local levels, we are often the largest taxpayer in many of those communities and much of the taxes paid are directed toward local services," the company said.

Several other firms did not comment on the report.

The watchdog report draws on recent research by the Institute on Taxation and Economic Policy, another nonprofit, left-leaning think tank. That group found 342 large corporations that paid a cumulative effective tax rate of 14.1% over five years, well short of the statutory corporate tax rate of 21%.

The data in the report come from financial documents filed with the Securities and Exchange Commission. Compensation figures include base salary, cash bonuses, perks, stock options, stock awards and changes in the value of retirement benefits.

Report: 18 corporations paid no federal income tax in 5-year stretch

The new report cites 18 profitable corporations that paid no federal income tax in the five-year period. Instead, all but one received refunds. The same corporations paid their top executives a cumulative $5.3 billion in those years.

The watchdog report comes as the Internal Revenue Service is ramping up audits of large businesses and high-income Americans, leveraging billions in new funding from Congress.

President Joe Biden added nearly $80 billion in IRS funding to the Inflation Reduction Act of 2022 with the hope that the investment would recoup as much as $400 billion over the next decade in unpaid taxes from wealthy people and companies.

The watchdog report charts a decadeslong decline in the tax rates paid by corporations. The top statutory tax rate has declined from 51% in 1986 to 21% today, according to the Tax Policy Center, a joint venture of the Urban Institute and Brookings Institution.

Corporations also avoid taxes by shifting profits offshore, among other loopholes, the report says.

While corporate tax revenue has stagnated, the report says, executive pay has skyrocketed. The typical CEO compensation package reached $14.8 million in 2022, according to The Associated Press, compared with $77,178 for the average worker in those companies.

Not all economists agree with the report's conclusions.

Kyle Pomerleau, senior fellow at the nonpartisan American Enterprise Institute, said low corporate tax rates reflect big corporations doing what they can to reduce their tax burden, just like ordinary taxpayers.

"These low effective tax rates are not reflective of tax evasion," he said. "It's tax avoidance. Tax evasion is illegal. Tax avoidance is legal." Whether you're a business or a private citizen, he said, "if there's a tax credit or deduction you're entitled to, you're going to take it."

Pomerleau said many corporate tax breaks, such as tax credits for research and development, are tailored to encourage "activities that have a broad positive effect on the economy."

Which firms spend more on executive pay than income tax?

Here are snapshots of 10 large corporations, spotlighted in the watchdog report, whose executive pay reportedly exceeds their federal income tax payments.

Tesla

5-year executive pay: $2.5 billion

5-year federal income tax (and tax rate): -$1 million (0%)

T-Mobile

5-year executive pay: $675 million

5-year federal income tax (and tax rate): -$80 million (-0.4%)

Netflix

5-year executive pay: $652 million

5-year federal income tax (and tax rate): $236 million (1.6%)

American International Group

5-year executive pay: $406 million

5-year federal income tax (and tax rate): $385 million (2.2%)

Ford Motor

5-year executive pay: $355 million

5-year federal income tax (and tax rate): $121 million (1.5%)

NextEra Energy

5-year executive pay: $325 million

5-year federal income tax (and tax rate): $287 million (1.2%)

Darden Restaurants

5-year executive pay: $120 million

5-year federal income tax (and tax rate): $28 million (0.8%)

MetLife

5-year executive pay: $240 million

5-year federal income tax (and tax rate): $96 million (0.8%)

Duke Energy

5-year executive pay: $181 million

5-year federal income tax (and tax rate): -$1.2 billion (-7.9%)

FirstEnergy

5-year executive pay: $121 million

5-year federal income tax (and tax rate): -$44 million (-0.7%)