Restaurant chains slash tax bill with executive pay deduction

The nation’s most prominent restaurant chains used a tax break for executive compensation to lop close to a quarter of a billion dollars off their tax bill the last two years, according to a new study from a liberal group.

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The Institute for Policy Studies found that the 20 biggest members of the National Restaurant Association — including chains like Starbucks, Chipotle and McDonald’s — gave executives more than $660 million in tax-deductible performance pay over the last two years.

That’s allowed those corporations to pay $232 million less in taxes over that same span, the IPS said, at the same time that the National Restaurant Association has fervently opposed a hike in the minimum wage.

“These restaurant CEOs aren’t the only executives gorging on taxpayer-subsidized bonuses,” said Sarah Anderson, a co-author of the study.

“But their pay practices deserve extra scrutiny because of the high social costs of this industry’s low-wage model — a model they’re seeking to preserve by fighting minimum wage increases.”

Restaurant chains and other companies currently have no limits on the amount of executive pay they can deduct, as long as it comes in the form of stock options or other rewards for performance. 

The use of that tax break has become increasingly popular over the last two decades, after Congress limited the ability for corporations to deduct executive salaries. Right now, companies can deduct a maximum of $1 million of salary per executive.

The IPS study found that Starbucks took the most advantage of the performance pay tax break, with the coffee seller’s chief executive, Howard Schultz, pocketing $236 million in performance pay in 2012 and 2013. That allowed Starbucks to lower its tax bill by $82 million, the IPS said.

Chipotle received $69 million in tax breaks because of the performance pay deduction during that same two-year period, the IPS added. Meanwhile, McDonald’s, Dunkin Brands and Yum! Brands, which owns KFC, Pizza Hut and Taco Bell, all sliced between $12 million and $23 million off their bills.

Critics of the study said that it was foolish to link a restaurant chain’s use of tax breaks to the minimum wage debate.

Democrats have made increasing the minimum wage to $10.10 an hour, from its current $7.25, a key plank in their more populist agenda this midterm election year. Restaurant workers have also gone on strike in the last year to protest low wages.

But groups like the National Restaurant Association say that hiking the minimum wage would cause yet another burden for the business world, at a time when the labor participation rate is already low.

Scott DeFife, the restaurant group's executive vice president of policy and government affairs, said that "comparing the typical wage of an entry-level, first-time, part-time worker to a chief executive of a global, publicly-traded company in any industry adds little to the discussion of real issues around upward mobility and income generation."

DeFife added that the restaurant group hasn't taken a stance on the executive pay deduction, and that its priorities for tax reform include protecting writeoffs for restaurant building and a tax break for donating food.

Steve Caldeira, the chief executive of the International Franchise Association, added in a statement that the "study is another deliberate effort to distract from the increasing opportunities for employment and small business ownership created by the franchise industry in today’s still fragile economy,” 

But the IPS says that the performance pay deduction forces average taxpayers to subsidize massive restaurant chains, at a time when more than half of front-line fast food workers use at least one public assistance program.

House Ways and Means Committee Chairman Dave Camp (R-Mich.) sought to roll back the performance pay deduction in his broad tax reform draft this year, and Democrats in both chambers have also targeted the tax break. 

 

This post was updated at 4:38 p.m.