From the Wall Street Journal’s Opinion Journal:

Here we go again. This week Democrats are partying like it’s 1993 in the Senate, where they are about to fire what promises to be only the first salvo in their latest war on “excessive” CEO pay.

By an overwhelming majority yesterday, the Senate voted for cloture on the minimum-wage hike. But in order to get the provision past the Republican minority, Senate leaders attached it to tax cuts that are supposed to help the small businesses that stand to be hurt by the minimum-wage increase. And, in order to “pay for” those tax breaks, our solons had to find offsetting “revenue raisers”–that is, tax hikes. So, to review: To raise the minimum wage, the Senate had to cut taxes. But to cut taxes, the Senate had to raise taxes.

Specifically, to raise taxes on “the rich”–for which, read: corporate executives. One of the ways the Senate bill does this is to place a cap on the amount of “deferred compensation” that a company can award its top executives in a given year. The cap is equal to $1 million or the executive’s average salary for the previous five years, whichever is lower. But rather than simply tax any deferred compensation above that threshold as income, it imposes an additional 20% penalty tax on deferred comp above the limit. The Joint Committee on Taxation predicts this provision will bring in $800 million over the next decade. We’ll go out on a limb and predict it brings in an amount closer to $0.

…

Ironically, the targets of the law are probably those least likely to be affected by it. Top executives have the standing to negotiate gross-ups to cover their tax liability or to seek other forms of compensation, such as stock options or restricted stock grants, not covered by the cap. As a result, even the $800 million 10-year revenue estimate for this provision is likely to prove wildly optimistic by the time the compensation consultants and tax lawyers get through devising ways around it–for those who can afford their services.

This is, in fact, precisely what happened in 1993, when the $1 million cap on salary deductibility was imposed. In the mid-1980s, the average CEO had no stock options. Today, they are ubiquitous in the executive suites of large companies, and the tax code deserves much of the credit. Bill Clinton campaigned in 1992 on a promise to cap CEO pay by imposing the cap. “Let’s treat everybody fairly again” was his mantra at the time, and Congress took it up with gusto. The result was that the middle class got a tax hike and the executives got stock options.

I wonder why the Dems aren’t pushing for caps on the “excessive” fees paid to Hollywood actors?

Related content:

This entry was posted by Brian on Wednesday, January 31st, 2007 at 7:13 am and is filed under Government, Taxes. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site. Please note the copyright policy.