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December 16, 2016 at 09:12 AM
Chief executive officers are poised to collect an additional retirement windfall if President-elect Donald Trump succeeds in cutting the taxes of the highest U.S. earners, according to a new study.
The CEOs of Fortune 500 companies, who had accumulated almost $3 billion in tax-deferred accounts at the end of 2015, will owe the Internal Revenue Service about $990 million if the top federal tax rate is reduced to 33%, or $180 million less than they’d currently pay, the Institute for Policy Studies, a liberal think tank in Washington, said in a study released Thursday.
While rising executive pay and widening inequality across income groups have drawn increasing attention in the U.S., less has been made of the large gap in retirement savings, the authors say. Just 100 CEOs have accumulated retirement savings equal to the entire retirement accounts of 41% of U.S. families — or more than 116 million people, according to the report.
“During the presidential campaign we heard the frustrations of workers about loss of jobs and security for old age, so it’s disturbing to see the growing CEO-to-worker retirement gap,” said Sarah Anderson, co-author and the institute’s global economy project director. “CEOs with tax-deferred accounts have been gambling that the tax rate will go down before they withdraw their savings, and now that is likely to happen.”
The bulk of CEO retirement savings is in deferred-compensation plans that permit executives to set aside salaries, bonuses and in some cases stock awards on a pretax basis. Because they only pay taxes when they withdraw the funds, they’ll benefit if the maximum marginal tax rate is lowered to 33% from the current 39.6%, as Trump has proposed.
Ending ‘Dodge’
Trump’s team says his plan benefits all Americans, including the working class. It ensures the rich pay “their fair share” but not enough to undermine job growth or U.S. competitiveness, according to the campaign website. Arthur Laffer, who served on President Ronald Reagan’s economics team, agrees.
“The tax cuts done correctly will benefit everyone and strengthen the economy — and executives will stop spending time trying to dodge the rate with things like tax-deferred plans and spend more time working,” said Laffer, chairman and president of Laffer Investments in Nashville, Tennessee. Glenn Renwick, who led Progressive Corp. as CEO for almost 16 years before stepping down recently, is at the top of the study’s list with tax-deferred retirement savings of $194.4 million. Last year alone, Renwick, who’s still chairman, set aside $24.7 million in his tax-deferred account.
Workers at the Mayfield Village, Ohio-based insurance company are eligible for a 401(k) plan that includes a 100% matching contribution at up to 6% of income, for a maximum of $12,000. ‘Objective, Measurable’
