Why is there Business Tax Dedutions for Compensation in excess of $1Million

[FreakinDJ]

Our whole tax system is based on a "Progressive Tax" yet Washington fails to acknowledge excessive Executive Compensation is a determent to businesses and the economy

[dawg]

1. Because it's income to the recipient.

The deduction takes it off the company's return and puts it onto the recipient's return - where it belongs. No sense in taxing the income twice.

The real issue here is the shareholders being screwed. (And most of our retirement accounts are the shareholders)

[FreakinDJ]

2. It stifiles reinvestment into the business

and can lead to business failure

[dawg]

3. That's why I think it the shareholders who should have an issue with this and not the government.

The government has a better chance of getting their money if it is paid out in salary. But shareholders are getting repeatedly screwed, and no one is willing to stand up for them. Liberals don't care, for the most part, because they think of shareholders as being the "rich". But conservatives are in bed with the CEO's and Wall Street, many of which are little more than high-class pirates, stripping as much as they can from the carcasses of the companies they are supposed to be running.

[FreakinDJ]

4. During the 90s - When the Economy was Booming - we had Caps on Exec Pay Tax Deduction

Its not like it is a new idea - but it is an idea that worked very well for the Economy as a Whole

Second, Section 162(m) included an exemption for "qualified performance-based compensation." Firms may continue to claim tax deductions in excess of $1 million for compensation under shareholder-approved plans that link pay to objective measures of firm performance and are administered by a committee of "outside" directors on the Board. Three-quarters of all the firms studied by Rose and Wolfram qualified some type of compensation for this exemption, and roughly 40 percent of the firms affected by the pay cap qualified both bonus and stock options plans for exemption. Salary payments are considered non-performance-based by definition, and are therefore entirely subject to the $1 million cap.

http://www.nber.org/digest/dec00/w7842.html

It is an idea that has been empherically proven to work very well

[dawg]

6. I don't think the caps contributed to economic success in the 90's.

Corporations just restructured executive compensation to consist primarily of unfairly generous stock options. This gave CEO's every incentive to make decisions that goosed the short-term stock price while damaging the company's long-term best interests. CEO's had the power to initiate huge share buybacks that raised the market price of the stock, enriching themselves in the process, without doing a single thing to increase the productive capacity of the company.

This may even have contributed some to the stock bubble that popped in 2000. Too much attention to the stock price, not enough attention to the long-term health of the underlying companies.

[Nye Bevan]

5. Did you mean to say "why is there *not* a tax deduction for compensation in excess of $1 million"?

Because that's the current rule.