Deferred Compensation Unbound

Abstract

This paper argues for enactment of accrual-based taxation of deferred compensation. Changes made by the Tax Cuts and Jobs Act of 2017 expanded the tax subsidy for deferred compensation, increasing an unjustifiable drain on federal revenues. Under accrual-based taxation, a corporate executive would include deferred compensation in gross income as soon as the deferred compensation vests. Accrual-based taxation better reflects economic income and removes the tax subsidy under current law.

Keywords: Tax, Tax Policy, Executive Compensation, Deferred Compensation, Corporate Governance

JEL Classification: H20