Tax loopholes seen costing billions annually

WASHINGTON Mon Aug 25, 2008 9:43am EDT

A handful of U.S. hundred dollar bills is displayed in an undated file photo. REUTERS/File

A handful of U.S. hundred dollar bills is displayed in an undated file photo.

Credit: Reuters/File

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WASHINGTON (Reuters) - Tax and accounting loopholes that largely benefit rich taxpayers and companies cost the government $20 billion a year even as the pay gap between chief executives and employees has widened, two groups said on Monday.

The biggest loss comes from a "stock option accounting double standard" that allows corporations paying executives stock options to deduct more than their actual expenses, they said.

For example, when UnitedHealth Group Inc paid CEO William McGuire 9 million stock options, it put on its financial statement that the compensation cost the company nothing, according to the Institute for Policy Studies and the group United for a Fair Economy.

But it claimed a tax deduction of $317.7 million, the groups said.

That practice alone costs the U.S. government $10 billion a year, the groups said.

A practice known as deferred compensation -- which allows executives to defer an unlimited amount of pay -- costs the government $80.6 million a year, while other loopholes bring the total lost tax revenue to $20 billion, the groups said.

"It's outrageous that our tax dollars are inflating executive paychecks," said Sarah Anderson, an author of the report. "Surely in these troubled economic times we can find better ways to spend our nation's wealth."

The report said large U.S. companies paid CEOs an average $10.5 million in compensation last year, 344 times what the average worker earned.

That gap is expected to grow as the industries adding workers are those with the biggest pay gaps, the groups said.

(Reporting by Diane Bartz; Editing by Braden Reddall)

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