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Addressing Liberal Gripes with CEO Pay, Part I

Author: Vale

CEO pay deductionThe level of spin liberals come up with is truly amazing. The latest one they are calling the "performance pay loophole." Prior to a law passed in 1993 (Section 162(m)), firms were free to compensate their executives as they chose. Congress, with its infinite wisdom of bowing to populists, sought to tax more of this executive income by restricting the tax deductibility of that compensation that the firm was always able to do beforehand.

All compensation (from the janitor to the CEO) is taxed at the individual level, so by removing the firm's ability to deduct that compensation, this new law was exactly a tax increase on the firm. What they created was a new double tax: once on the corporation and once again on the individual. Clearly, no firm wants to pay additional taxes, so how did firms respond? They checked a box on the tax form that allowed them to categorize part of the executive pay as performance pay (which it undoubtedly is) so that they wouldn't be subject to most of the new penalty (some of the compensation structure also changed such as issuing more stock options while reducing salary). So not a lot changed from this new law.
Come today, liberals now call this situation a subsidy. Apparently that is the same thing as the government going over to Grandma's house, taking some money out of her purse and giving it to Goldman Sachs. Well this is how they want you to see it anyway. Phantom tax dollars that were never collected becomes more than a loss of actual tax dollars and actually a check. Obama didn't pay me $10,000 today, therefore I paid him $10,000 today. The lack of tax revenue is not a subsidy. If we had it their way, all of our salaries would be considered a government subsidy because we don't pay taxes at 100%.
What these Democrats want is an additional tax on executive compensation (which they absolutely hate and think it is excessive and takes away from the minimum wage worker) so why don't they just come out and say it? Well it gets more support from the public if it spun as costing the taxpayer money. A couple of bills have been introduced to Congress over the last few years attempting to increase taxes on executive pay and so far they have not gone anywhere.
Of course they use bogus euphemisms with titles like the "Income Equity Act" as if somehow increasing taxes on firms is equitable. But don't believe the hype. Call it what it is - a tax increase proposal.


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