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The Therapy Sessions
Tuesday, July 26, 2005

Maybe CEO pay is too high

Every now and then I read something that changes my mind - because it seems to make sense.

Yesterday, if you had complained about the need for government to "do something" about "excessive" CEO compensation, I would have yawned.

It is, after all, not your money.

If Cogswell's Cogs wants to pay its CEO $200 million, that's their business (and their business might suffer from their poor judgement).

Did the Chicago Bulls overpay Michael Jordan? It depends on what you think winning five national championships is worth.

But here's an interesting thing: CEO pay - like all company salaries - are TAX DEDUCTIBLE.

This is one of the reasons that they are growing so fast.

Democrats - who are always sniffing around for tax revenue - have noticed: You deserve a refund for fat CEO pay.

If companies themselves won't subdue CEO pay, Congress should, says US Rep. Martin Sabo, a Democratic prairie populist from Minnesota. Earlier this month he reintroduced a bill, the Income Equity Act, which would eliminate tax deductions for compensation that exceeds 25 times that of the company's lowest paid full-time employee.

Currently, the gap is more likely 300 to 500 times. The Sabo bill would mean that if the lowest-paid worker got $20,000, then the highest salary deduction the firm could claim would be $500,000. A company could pay its CEO more, but couldn't deduct more from its tax obligations.

Now that IS interesting.

I have quibbles with Sabo's bill. I think that no salary should be tax deductible. Salaries are an expense that companies must pay. Giving them a tax deduction for paying their workers is like giving me a tax deduction for paying for my groceries.

But I like Sabo's idea - I must admit - with one other reservation. Ending tax breaks will increase the revenue that the government extracts from the economy, and this will slow growth.

If we must take exta revenue here, we should offset that by decreasing government's revenue "take" somewhere else. I suggest that this tax hike be offset by a cut in the corporate tax. As Ireland has learned, that is a great way to stimulate growth.

What is wrong with my logic?

Why am I finding myself in agreement with "a prairie populist Democrat?"

I should point out that Sabo's bill has no hope of passing.

Republicans reflexively oppose anything that might be viewed as a tax hike, and Democrats - though they are loathe to admit it - get tons of money from CEO fat cats (right John Corzine?).

But that's life....

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