New York, NY (PRWEB) July 22, 2013
The last three decades have seen a dramatic increase in pay for corporate executives while workers’ wages have only stagnated. What accounts for this disparity, especially in the wake of a massive financial crisis that many of those at the top helped to create? In the Roosevelt Institute’s new white paper, "Fixing a Hole: How the Tax Code for Executive Pay Distorts Economic Incentives and Burdens Taxpayers," Dr. Susan Holmberg and Lydia Austin describe a loophole in the federal tax code provision meant to curb excessive executive pay that has instead lowered revenues and encouraged risk and fraud while executive pay continues to soar. They argue that Congress must close this loophole in order to promote long-term private investment, reduce systemic financial risk, and raise billions in tax revenue.
Section 162(m) of the Internal Revenue Code, signed into law in 1993, limits corporate tax deductibility for executive compensation to $1 million. However, Holmberg and Austin show that its exception for “performance pay” has simply made alternative forms of compensation like stock options more popular. Drawing on extensive economic research, they find that these compensation structures create incentives for risk and fraudulent behavior such as secret back-dating; minimize incentives for long-term investments in research and innovation; and significantly decrease corporations’ marginal tax rates, costing taxpayers over $30 billion between 2007 and 2010 alone.
“There is no single policy response to excessive CEO pay, but closing the performance pay loophole and applying the $1 million deductibility cap to total executive compensation is an important part of the puzzle,” says Holmberg. “Under the current law, taxpayers are forced to subsidize not only executives’ lavish pay but the kinds of reckless behavior that led to the 2008 financial meltdown and the Great Recession.”
The white paper, the first in the Roosevelt Institute’s series on executive compensation, is a collaboration between Susan Holmberg, the Roosevelt Institute’s Director of Research, and Lydia Austin, the Roosevelt Institute Campus Network’s Senior Fellow in Economic Development. Holmberg holds a Ph.D. in Economics from UMass Amherst, and her primary research areas include corporate governance issues, international development, and the history of economic thought. Austin is a recent graduate of the University of Michigan Gerald R. Ford School of Public Policy and has published a number of papers on economic development and public finance.
Holmberg, the lead researcher, is available for interviews. For more information, contact Tim Price.
About the Roosevelt Institute
The Roosevelt Institute is a nonprofit ideas and leadership organization dedicated to carrying forward the legacy and values of Franklin and Eleanor Roosevelt by developing progressive initiatives and bold leadership in support of America’s promise of opportunity for all. The Institute works with world-class thought leaders in our Four Freedoms Center; the Campus Network and Pipeline programs work with thousands of Millennials to drive policy solutions at the local level; and the FDR Library maintains the Roosevelts’ legacy to redress inequality in our nation. Our major thought work is developing a “New Deal for the 21st Century” by focusing on economic and social policy. Visit us at http://www.rooseveltinstitute.org or follow us on Twitter @rooseveltinst for more information.
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