A new must read is the Roosevelt Institute’s Susan Holmberg and Lydia Austin’s “Fixing a Hole: How the Tax Code for Executive Pay Distorts Economic Incentives and Burdens Taxpayers.” Disclaimer: In reading, one can become depressed, as CEO pay seems to be escalating ever higher. Since 1978, executive compensation has risen 725 percent — 127 times faster than worker compensation.
Public Citizen has published numerous tracts on the issue of excessive CEO pay, including “Hourly Rates,” where we attempted to make understandable what these high pay figures mean. As an aside, the best-paid person on the planet remains John Paulson, who made $2.5 million an hour in 2011.
Holmberg and Austin write as we anticipate legislation to eliminate American taxpayer subsidization of this escalating pay. When a corporation pays these zillions of dollars to executives, they can deduct bonus pay as an expense. Congress attempted to eliminate the ability to deduct any amount over $1 million in 1993, trying to make clear that pay should no more be deducted than should flying a spouse on a corporate jet or a five-martini lunch. But, unfortunately, Congress left a Wall-Street-sized loophole in the law that allows executives to deduct for pay for “performance” – that is, executive bonuses.
Ideally, this pending bill will succeed, though of course one expects resistance from the politically connected folks who make these unconscionable sums.
Current law says that companies may deduct compensation of any amount, provided that the executive earns any amount above $1 million by surpassing performance tests. Or in other words, bonus pay given for a good job is still tax deductible. This pending legislation will close that loophole.
The talking points on this debate write themselves, and the arguments have been made for decades. Martin Luther King famously stated that the arc of history bends toward progress.
The CEO pay spiral suggests that the 1% has bent that arc, and that we need to get back to progress.
Bartlett Naylor is the financial policy reform advocate for Public Citizen’s Congress Watch division. Follow him on Twitter at @BartNaylor.