How did 90% tax rates work way back when? Here is one view.

[dkf]

http://www.economist.com/blogs/freeexchange/2007/04/are_the_rich_really_different

But in fact, the tax rates of the 1950's didn't necessarily reduce CEO consumption; it just reduced their reported taxable income.  The high income tax rates in the 1950's were paired with a corporate tax system that allowed companies much more generous deductions for things like business lunches, business-travel-with-spouse, and so forth.  Right now you pay Rick Wagoner a squillion dollars, and he entertains important people on his own dime; in 1955, you paid him less, but he expensed all his entertaining to the company.  Descriptions of 1960's expense account procedures for even entry-level management are enough to make this journalist rather faint with envy.

This difference also explains some of the difference between American executives and those in Europe; among my American friends in international finance, European expense accounts are the subject of something close to awe.  This is not to say that the tax code is the only explanation; almost no phenomenon has a single cause, and I have no doubt that there has been an actual, as well as an apparent, increase in CEO compensation.  But I greatly doubt that it is anywhere near as large as the taxable income figures seem to make out. Leaving founder-owners like Larry Ellison and Bill Gates aside, it's hard for me to detect massive lifestyle differences between F. Ross Johnson (the CEO of RJR Nabisco described in Barbarians at the Gates) and the current CEO of Kraft Foods (which bought Nabisco).  The difference is, the current CEO gets his in cash and stock.

Though $18 million in compensation is a figure that wounds the soul of most journalists, this is probably a better deal for shareholders.  A tax system which encourages the CEO to take his compensation in non-cash forms probably induces all sorts of distortionary decisions that make us all, in the long run, worse off.  Now, by contrast, he has an incentive to minimise such waste in order to ensure that there will be ample money to fund his compensation.

[Hawkowl]

1. Oh bullshit

More greed rationale. Greed is bad! Greed encourages theft. Greed encourages cooking the books and lying to jack the stock price up, sell, and get the hell out of Dodge.

Higher compensation doesn't encourage minimization of waste, because CEO's are paid eight figures even if they destroy the company. This is a bad example that all the lower level wannabes ape. Management no longer aspire to quality and pride in product, only to ever increasing compensation through long term destruction of their companies, their employees, and society.

[leftstreet]

5. +1

[abelenkpe]

2. The Economist says? I call BS

But I'm too busy to research this at this moment. Will definitely pass it to larger brains and get back tho....

[ejpoeta]

3. here is my take...

even though the taxes were higher, true they didn't pay as much anyway. the difference is that they avoided those taxes by investing in their employees and the company. now they dont have to do that and can just pocket the money. they still get to write off business lunches etc btw.

[Hannah Bell]

4. you can judge from the percent of us federal taxes that were paid by corporations which was

something like 25% in 1960 v. something under 8% today.

[napi21]

6. Some of what you say is true, but it's only applicable to a

handfull of people. The majority of very high earners back then owned their own companies. Those high tax rates encouraged those owners to reinvest in their business instead of simply taking out all the profits since reinvestment isn't taxable and taking BIG BUCKS out for themselves would result in the vast majority of it would go to Uncle Sam.

Todays behavior is nothing less that rampant GREED!

[rfranklin]

7. Many top executives get an "entertainment allowance"

Basically the same thing as the 1950s in a different form with a different name but still a wad of money to blow on dinners and golf and other amusements.

[W_HAMILTON]

8. Wow, it's like a right-wing dissertation.

(1) There are still personal deductions for the entertainment purposes referred to in the article. If it serves a business purpose, things such as meals, a skybox at a sports stadium, etc. can all be tax deductible. And you can be damn sure that those who are eligible for these deductions are taking them.

(2) Compensation is "non-cash form" usually means shares of the company, in which case the compensation goes up the more successful the company is. You'd have to be a damn fool to think that shareholders would rather pay their CEO in guaranteed cash over basically an incentive program where, when the CEO benefits, they benefit. That's the one of the most ignorant comments I've ever read.

[OneTenthofOnePercent]

9. I'm sure it was great in a time when outsourcing jobs and the global economy wasn't as competitive.

With the internet and modern communications, increasing foreign education rates, expedient travel and shipping, and a very competitive global econonmy... I suppose fleecing the very rich won't be as easy as it once was.

[provis99]

10. oh, its the Economist.

Right-wing libertarian rags are not usually the most believable source for opinions.