A Tax Response to the Executive Pay Problem
David I. Walker
Boston University School of Law
October 14, 2011
Boston Univ. School of Law, Law and Economics Research Paper No. 11-50
Many observers believe that that the public company executive labor market is deficient and results in systematically excessive compensation. This Article accepts that premise and considers potential regulatory responses. Specifically, this Article proposes and analyzes a two-pronged tax response to the problem of excessive executive pay – the imposition of a surtax on executive pay in excess of a threshold combined with investor tax relief. These two prongs respond to the chief concerns raised by excessive executive pay. The imposition of a surtax would reduce the after-tax income of executives, which would directly address the unfairness of excessive pay and the effect of excessive pay on inequality of resources. Investor tax relief would tend to reverse the inefficient distortion in capital allocation that results from excessive pay and would ensure that these distortions were not exacerbated by companies increasing executive pay to offset the surtax.
Number of Pages in PDF File: 62
Keywords: executive compensation, surtgax, tax incidence, managerial power
JEL Classification: G34, H22, H24, J33, K22, K34, M52
Date posted: October 14, 2011 ; Last revised: January 17, 2012
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