Thursday, January 18, 2007
Inmates No Longer Running the Asylum?
by Tom Bozzo
While efforts to rein in executive pay through the tax code have been a miserable failure so far, this is at least a small step towards equal treatment under the tax law. The $1 million figure is not necessarily what I'd pick — $45,000, which is the maximum amount of deferred compensation allowable in 2007 under ERISA plans such as 401(k)s, springs immediately to mind. (*) And, it should be noted, people putting even $45,000 a year into a tax-deferred savings vehicle for an extended period of time would expect a quite comfortable retirement. I suppose the Nice Round Figure was chosen to minimize political impact of breast-beating by business lobbies and to improve the odds that Sens. Nelson and Lieberman plus 9 Republicans would approve.
The proposal is scored as generating about $80 million/year, which seems small at first blush, though part of the story is that the tax on deferred executive compensation is shifted to shareholders, who may pay corporate income tax on the deferred amounts.
(*) The more widely known limit is the $15,000 for employee contributions to the plans. The higher limit includes various forms of employer contributions into all eligible plans.
The Senate Finance Committee passed a proposal to cap tax-deferred compensation for corporate executives at $1 million. (More discussion is here.) The heart-warming quote is:
"I didn't know it was coming," said Dan Danner, executive vice president of the National Federation of Independent Business, a small-business lobby. "It's not something that we proposed or had anything to do with."Heh indeedy.
While efforts to rein in executive pay through the tax code have been a miserable failure so far, this is at least a small step towards equal treatment under the tax law. The $1 million figure is not necessarily what I'd pick — $45,000, which is the maximum amount of deferred compensation allowable in 2007 under ERISA plans such as 401(k)s, springs immediately to mind. (*) And, it should be noted, people putting even $45,000 a year into a tax-deferred savings vehicle for an extended period of time would expect a quite comfortable retirement. I suppose the Nice Round Figure was chosen to minimize political impact of breast-beating by business lobbies and to improve the odds that Sens. Nelson and Lieberman plus 9 Republicans would approve.
The proposal is scored as generating about $80 million/year, which seems small at first blush, though part of the story is that the tax on deferred executive compensation is shifted to shareholders, who may pay corporate income tax on the deferred amounts.
(*) The more widely known limit is the $15,000 for employee contributions to the plans. The higher limit includes various forms of employer contributions into all eligible plans.
