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Editorial: Affordable Care Act reduces exemptions for top executive salaries

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Corporate America’s CEO pay horror stories just keep rolling in.

Marissa Mayer took the CEO reins at high-tech giant Yahoo in 2012. As of the end of last year, that status had brought Mayer a personal windfall that could eventually hit $214 million. Meanwhile, the value of the high-tech giant’s core business has shrunk from $7.3 billion to $500 million.

Core business operations at biotech giant Amgen are thriving, and the firm’s CEO, Robert Bradway, is now sitting on a stash of Amgen shares and options worth $52 million. Bradway has just announced plans to lay off over 12 percent of his company’s workforce, about 2,900 in all.


Even relatively small-fry CEOs are cashing in. Terry Kellogg, the chief exec at Blue Cross-Blue Shield of Alabama, pulled in $4.84 million last year. The average worker in Alabama would have to work 123 years to make that much.

I could give you dozens of similar examples of CEO pay excess. But the news doesn’t rate as all bad. In fact, some is actually good. This comes courtesy of a law you may have heard a thing or two about: the Affordable Care Act.

Buried deep in the landmark legislation’s hundreds of pages sits an almost totally unknown provision that takes dead aim at over-the-top corporate executive pay.

Under longstanding U.S. tax law, American corporations get to deduct off their corporate income taxes almost everything they pay their top executives. In effect, the more corporations pay their execs, the less they pay Uncle Sam. And that tax avoidance neatly shifts the tax burden onto the rest of us.

The new ACA tax provision essentially ends this subsidy — for the multiple millions that pour into the pockets of America’s health insurance executives. Starting last year, health insurers only get to deduct the first $500,000 they pay to any of their top corporate brass.

My colleagues and I at the Institute for Policy Studies have just completed the first-ever analysis on the impact of the new tax-deductibility rule.

We looked at top corporate officers at the nation’s 10 largest health insurers, 57 in all. This group pulled in nearly $300 million in personal compensation in 2013.

Had the Affordable Care Act not been in effect last year, the health insurers employing these executives would have been able to deduct about $289 million of that $300 million off their taxes. Thanks to the new law, they could only deduct $82 million.

Obamacare raised the tax bill for America’s top 10 health insurers by at least $72 million. Remember, this $72 million in taxpayer savings came from lower deductions on the pay of just 57 executives. The new rules apply to all executives at all major publicly held health insurers. That means that the actual taxpayer savings last year ran far higher.

Sam Pizzigati edits Too Much, the Institute for Policy Studies online weekly on excess and inequality. He is the co-author of “Executive Excess 2014: The Obamacare Prescription for Bloated CEO Pay,” a new Institute for Policy Studies report.

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