Some of California’s Wealthiest CEOs Run Corporations That Paid No Federal Income Tax

The gap between the wealthiest Californians and the less well-off has widened substantially in recent decades, as illustrated in a new CBP report, A Generation of Widening Inequality. The average income of the middle fifth of California’s taxpayers was approximately $35,000 in 2009 – almost 15 percent lower than in 1987 on an inflation-adjusted basis. In contrast, the average income of the top 1 percent was $1.2 million in 2009 – approximately 50 percent higher than in 1987, after adjusting for inflation. That means the average Californian in the top 1 percent earned in less than eight workdays what the average middle-income Californian earned in a year.

Who are the wealthy? Contrary to popular perception, entertainers and professional athletes make up just a small fraction of the wealthiest 0.1 percent of US taxpayers. Instead, six out of 10 of the top 0.1 percent are executives, managers, or financial professionals. And according to Forbes, many of the nation’s highest-paid executives run California-based companies, including Walt Disney’s CEO, Robert A. Iger, whose annual compensation of $53.3 million makes him the third-most-highly compensated chief executive of a US company.

Interestingly, a report released yesterday by Citizens for Tax Justice (CTJ) and the Institute on Taxation and Economic Policy (ITEP) shows that some of the most highly compensated CEOs run California-based companies that paid no federal income tax in recent years, even though these companies earned profits. For example, San Francisco-based PG&E paid no federal income tax in 2008, 2009, or 2010 even while it earned profits in each of those years totaling nearly $5 million. In addition, San Diego-based Sempra Energy paid no federal income tax in 2008, even though the company earned a profit of more than $1 million that year. According to Forbes, the annual compensation of PG&E’s CEO, Peter A. Darbee, was $7.3 million last year, while that of Sempra’s CEO, Donald E. Felsinger, was $20.6 million.

The CTJ and ITEP report examined a total of 280 companies on the Fortune 500 list that were profitable in each of the last three years and provided sufficient and reliable information in their financial reports about their profits and taxes paid. Overall, 78 of the companies (27.9 percent) paid no federal income taxes in at least one of the past three years.

—Alissa Anderson