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'House of Cards' falls on Walmart

Aaron Task
Editor in Chief

Warning: The following includes potential spoilers for Season 3 of 'House of Cards'.

Bashing Walmart has now officially gone mainstream. In the current season of House of Cards on Netflix, a presidential candidate takes aim at the retail giant.

Here's a sample:

"The starting salary for an employee at Walmart is below the poverty line....The American government subsidizes Walmart to the tune of $7.8 billion a year by issuing food stamps to over one in 10 of its workers. But here's the scary part. Fifteen percent of all food stamps are actually used at Walmart. Meaning Walmart gets to double dip into the federal government's coffers.

"Walmart's top executives have reaped almost $300 million in tax-deductible performance pay over the last six years."

A Walmart spokesman said he had "nothing to add," saying the company is "not interested in debating fiction."







Of course, that can be read two ways: House of Cards is obviously fictitious -- or he could be suggesting the numbers cited on the show were incorrect. The spokesman did not respond to additional calls seeking clarification.

There's nothing new about criticizing Walmart for underpaying employees or 'double-dipping' on food stamps, and I'm sure that episode was taped before Walmart announced plans to raise pay for its entry level workers. But the line about "tax-deductible performance pay" caught my attention as it's not a term that's widely used by presidential candidates -- or financial journalists for that matter.

The statistic regarding "almost $300 million in tax-deductible performance pay" seems to have come directly from a 2014 report jointly produced by the Institute for Policy Studies and Americans for Tax Fairness. "While Walmart is shortchanging its employees, it is lavishing excessive pay on its executives," the report declares.

Sarah Anderson, director at the Institute for Policy Studies (IPS), said she "thrilled and amused such a wonky issue made it into a hit TV show," but that no one from House of Cards contacted her about Walmart.

Frank Clemente, executive director at Americans for Tax Fairness  said he'd "heard about" the Walmart slam on House of Cards but hadn't seen it yet. "I haven't even watched Season 2," he confessed. "I'm pretty behind."

Clemente says no one from Netflix or House of Cards reached out to his organization either. And while Walmart is an easy target, there is a question of why the Netflix original series chose to go after the retailer vs. McDonalds or other fast-food chains that have been targeted by populists and workers' rights groups. Ten years ago, WalMart tried to undercut Netflix on DVD sales and the two companies recently settled a class-action lawsuit that alleged they restrained trade and kept DVD prices artificially high.

Netflix representatives did not respond to requests for comment.

The IRS: A CEO's Best Friend

The issue of "tax-deductible performance pay" stems from 1993 legislation that capped corporate deduction of executive pay at $1 million, per executive. Section 162(m) of the IRS code was Bill Clinton's effort to both cap CEO pay and more closely link it to company performance; laudable goals. But the law of unintended consequences prevailed. Since 1993, executive pay has skyrocketed, thanks largely to a dramatic increase in "performance-based" stock options and bonuses, which aren't subject to the $1 million cap.

"Clinton’s law soon became an inside joke in boardrooms across America," David Nelson, chief strategist at Belpointe Capital, writes of the 1993 law. "After 20 years I think it’s safe to say the policy is a failure. Performance-based pay became so attractive that there are countless examples of CEOs willing to accept just $1 in salary. Stock-based compensation in all its forms became the preferred currency. Today, CEOs have no better friend than the IRS."

CEO-to-worker pay ratios were hovering in the high 50s in the mid-1990s but have exploded since, reaching as high 383 in 2000 amid the stock- and options-fueled tech bubble, according to the Economic Policy Institute. The ratio fell to as low as 209 in the aftermath of the financial crisis and has since rebounded back above 300 in 2014.

IPS's Anderson argues the 1993 rule created "an incentive for companies to overpay: the more companies pay the CEO, the less they pay in taxes," she says, estimating closing the loophole on so-called performance pay would generate $50 billion in additional tax revenues over 10 years.

And it's not just taxpayers who are subsidizing "outsized" CEO pay. Nelson points out the folly of companies issuing stock options to executives, which dilute existing shareholders, and then spending billions to buy back stock in order to offset the dilution. "However, the volume of stock-based compensation became so large that even with buybacks, earnings at some companies looked abysmal," he writes. "To circumvent the problem, boards turned to non-GAAP accounting, which excludes stock-based compensation. Amazingly, boards have convinced shareholders that stock-based compensation isn’t real money."

So...stock-based compensation isn't "real" money -- at least not in corporate American -- and House of Cards is, thankfully, a work of fiction. But here's where art isn't just imitating life, but potentially leading it.

In the past few years, a number of politicians, of both parties, have proposed legislation that would limit the deductibility of performance-based pay, including:






























  • The CEO/Employee Pay Fairness Act, sponsored by Representative Chris Van Hollen (D-MD), would deny corporate tax deductions for executive compensation over $1 million unless the firm raises salaries for lower-level workers to keep pace with cost of living and productivity increases.
  • In 2013, Sen. Jack Reed (D-RI) and Sen. Richard Blumenthal (D-CT) co-sponsored the Stop Subsidizing Multimillion Dollar Corporate Bonuses Act (S. 1476). Rep. Lloyd Doggett (D-TX) introduced a companion bill in the House (H.R. 3970).
  • As Chairman of the House Ways & Means Committee, Rep. Dave Camp (R-MI) produced a tax reform plan last year that would end taxpayer subsidies for a company’s top five executives. Camp has since retired from Congress.
  • The Affordable Care Act and TARP programs set a $500,000 deductibility cap on pay for bailout recipients and health insurers.


According to Clemente, sponsors were trying to get the Stop Subsidizing Multimillion Dollar Corporate Bonuses Act added to the Senate budget released Wednesday. A spokesman for Sen. Reed said that wasn't in the cards but "Senator Reed plans to reintroduce the bill in the near future."

Assuming House of Cards has tapped into the zeitgeist on this issue, perhaps the future is now.

"It's hard to get anything done on taxes but there's a huge opportunity in the context of the wage and income inequality conversation going on," Clemente says. "It would have a lot of legs. I'm urging bill sponsors to beat the drum. Why do we have to be subsidizing [executives'] pay? It doesn't make sense to me."






Aaron Task is Editor-at-Large of Yahoo Finance. You can follow him on Twitter at @aarontask or email him at altask@yahoo.com.