Tax Excessive CEO Pay Act

[The Great Zaganza]

It’s funny to me that capitalism is so fabulous that it needs a tax break to make it attractive.

But back to OP proposal for CEO pay, options and RSUs and PSUs should all be considered “pay” for any such scheme.

Indeed.

This concept has a built-in diminishing return, unlike many other areas, where a small investment can lead to massive increases in tax revenue (child care, education, tax collection).

 

[lobosrul5]

6% is higher than is has been in a while, but it's still lower than capital gains tax rate. The amount of taxes you can avoid may have dropped, but it can still be viable under the right circumstances, especially if it is understood that the stock will be sold to pay off the loan at the start. You could probably get a lower rate at that point. Big Banks are more than willing to work with you if they can make enough money off their cut of the avoided taxes.

No one will give you margin rates lower than floating rate treasuries + some sort of spread. There would be no point whatsoever.

You open yourself up to getting margin called/force sold and being broke if you try and live off of margin and a 2020 or 2008 sell off happens*. Unless you are a billionaire. The Bezos' and Musk's of the world can do it but most CEO type's cannot without large amounts of risk... Jamie Dimon perhaps could.

*Or even not that extreme. Say a 30% selloff when you are margined at 40 or 50% will almost certainly lead to an unrecoverable loss in your account.

 

[Dr. Keith]

Its an unfair advantage over us "normies".

I get paid, that money is taxed upon payment. I can then buy shares, and if I sell at a gain, its taxed.

A corporate officer gets paid in shares. When he sells them his gain is taxed at the lesser long term rate. He gets taxed once. Where if I take the money I earned from my job and invest it I get taxed twice.

I think they do tax the shares upon grant or vesting. But I’m not a tax expert.

 

[Donal]

The CEO of what? The company in question or the PE firm that bought it?

 

[ahhell]

I find it weird that we tax the fruits of labor at a higher rate than unearned income.

Inherited wealth, rent-seeking, asset-stripping, regulatory capture... There are a lot of ways that individuals can "make money" that do not actually produce anything of value and can actually be a drain on the economy.

Yes, unless you can figure a way to tax theft, don't seem like it would be productive to include.


Rent-seeking, regulatory capture, asset stripping, I assume you're worried that our corporate tax rates are too low? Seems like a separate conversation, Otherwise, how exactly to you tax that?

There are also outright illegal things like theft, fraud, embezzlement, but I assume you want to keep this narrowed down to legal activities (we'll leave aside the issue of which activities should be legal or not for now).

Inherited wealth, so if I inherit my dads trailer, sure, I didn't earn it, but he certainly earned all that income from the farm labor. Granted, he didn't really earn the social security or 50 years of Navy retirement.

While actors and athletes can be paid a great deal of money, they are at least doing something of value, or else audience will not pay to see them.

You should probably read up on the "Buy, Borrow, Die" investment strategy.

So, CEO's must do something of value, otherwise the companies wouldn't pay them to be CEOs?

Sure, I'll read up on buy, borrow, die.

Ok, I did, not sure how it relates to excessive pay, if I squint, sure its unearned income and a tax dodge for sure, much like setting up non-profit foundation then hiring your child to run it.

As to why its unearned, that seems like some sort of moral judgement. Salary for labor, points on a movies sales, percentage of jersey sales is earned, salary and other gains from running a company not so much.

 

[ahhell]

https://itap1.for.irs.gov/owda/0/re... investment-type,unearned income from a trust.

“Unearned income includes investment-type income such as taxable interest, ordinary dividends, and capital gain distributions. It also includes unemployment compensation, taxable social security benefits, pensions, annuities, cancellation of debt, and distributions of unearned income from a trust.”

That's a better answer, at least its a legal definition.

 

[TragicMonkey]

I think they do tax the shares upon grant or vesting. But I’m not a tax expert.

Five seconds of Googling says yes, shares issued as part of compensation are taxed as ordinary income.

Which stands to reason, the IRS taxes even employer-paid life insurance above a certain level, counting it as compensation even though you have to die to actually get a penny of it, which even the greediest among us is reluctant to do to cash in.

 

[Dr. Keith]

Five seconds of Googling says yes, shares issued as part of compensation are taxed as ordinary income.

Which stands to reason, the IRS taxes even employer-paid life insurance above a certain level, counting it as compensation even though you have to die to actually get a penny of it, which even the greediest among us is reluctant to do to cash in.

Five seconds of googling would render this place a ghost town on many threads.

 

[Dr. Keith]

That's a better answer, at least its a legal definition.

In a discussion on tax I find that most terms are already defined. So that’s what I try to use.

 

[TragicMonkey]

As for "earned" vs "unearned" income, it's not a moral judgment being made: it's a convenient categorization to distinguish between the sources of paperwork needed to tax them. For taxing salary they need the employer's side of information. You get a W2. You're not an employee at Social Security and Fidelity Investments and Granny Greed's Discount Brokerage, but you do get money from them. So you need paperwork reflecting that relationship.

 

[lobosrul5]

Five seconds of googling would render this place a ghost town on many threads.

Well, thats no fun.

But yes, apparently the loophole only exists for private equity managers.

 

[theprestige]

It’s funny to me that capitalism is so fabulous that it needs a tax break to make it attractive.

Nope! Capitalism is actually so fabulous that it's highly attractive even without tax breaks. Black markets emerge even in communist societies, where not only are there no tax breaks, but private property and capital investment are frowned upon and even criminalized.

Tax breaks are an attempt by liberal governments to use market forces to encourage investment in things that would otherwise seem unattractive to people with capital.

Tax breaks are, in fact, a testament to the attractiveness of capitalism. If socialism were as attractive a capitalism, people with capital wouldn't need tax breaks, to invest in things the government wants investment in. They'd happily pay the higher taxes, as a way of investing in government programs.

---

Socialism is attractive to a lot of people, of course, mostly the further away from home it is. The closer the government gets to you personally being required to give according to your ability and receive according to your need, the more you come to terms with your love of private property and the freedom to invest your capital how you - not your government - sees fit.

 

[Random]

Yes, unless you can figure a way to tax theft, don't seem like it would be productive to include.

Fun fact. Income from illegal activity in the US is, in fact, taxable income. Every year, people do report their illegal earnings to the IRS. Usually as the result of being caught engaging in illegal activity and not wanting to have a further charge of tax avoidance added on.

 

[Trausti]

Socialism is attractive to a lot of people, of course, mostly the further away from home it is. The closer the government gets to you personally being required to give according to your ability and receive according to your need, the more you come to terms with your love of private property and the freedom to invest your capital how you - not your government - sees fit.

Everyone is conservative about what he knows best.

 

[Lukraak_Sisser]

More like cut the write-offs.

And make stock buybacks illegal again.

I'd also add that if you declare bankruptcy you're liable to pay the debt with any money or assets that put you above the minimum wage.

 

[theprestige]

I'd also add that if you declare bankruptcy you're liable to pay the debt with any money or assets that put you above the minimum wage.

Living wage, surely?

 

[TragicMonkey]

Tax breaks are an attempt by liberal governments to use market forces to encourage investment in things that would otherwise seem unattractive to people with capital.

Tax breaks are, in fact, a testament to the attractiveness of capitalism. If socialism were as attractive a capitalism, people with capital wouldn't need tax breaks, to invest in things the government wants investment in. They'd happily pay the higher taxes, as a way of investing in government programs.

Heh. As frequently occurs, we have similar view but different feelings about it. I'm a capitalist precisely because socialism isn't available where I am. If there were a proper, guaranteed, safe, and adequate government pension and medical coverage and stuff then I wouldn't need to invest my money privately for retirement. I have to save my money, and gamble with it entirely out of fear for the future because there is no adequate safety net in place. For me, capitalism is a survival strategy because there isn't socialism. The wealth is to be exchanged for living a comfortable, secure life and if I can get that guaranteed through paying it in taxes instead of gambling on the market then I'd be a fool not to accept that deal.

The problem is the capitalists who love capitalism because they want more, more, more, more, more than wealth enough to live in comfort for their own lifetimes. They want to live like kings, like emperors, like gods with wealth enough for a thousand lifetimes, ten thousand lifetimes. And they run the nation according to what they think will best serve their literally incalculable greed for wealth they have no purpose for beyond possessing it.

 

[Dr. Keith]

Nope! Capitalism is actually so fabulous that it's highly attractive even without tax breaks. Black markets emerge even in communist societies, where not only are there no tax breaks, but private property and capital investment are frowned upon and even criminalized.

Tax breaks are an attempt by liberal governments to use market forces to encourage investment in things that would otherwise seem unattractive to people with capital.

Tax breaks are, in fact, a testament to the attractiveness of capitalism. If socialism were as attractive a capitalism, people with capital wouldn't need tax breaks, to invest in things the government wants investment in. They'd happily pay the higher taxes, as a way of investing in government programs.

---

Socialism is attractive to a lot of people, of course, mostly the further away from home it is. The closer the government gets to you personally being required to give according to your ability and receive according to your need, the more you come to terms with your love of private property and the freedom to invest your capital how you - not your government - sees fit.

I take this as an impassioned argument against capital gains being taxed at a lower rate than earned income and agree with it to that degree.

 

[Trausti]

I take this as an impassioned argument against capital gains being taxed at a lower rate than earned income and agree with it to that degree.

Wouldn't it be better to just lower all taxes?

 

[acbytesla]

Nope! Capitalism is actually so fabulous that it's highly attractive even without tax breaks. Black markets emerge even in communist societies, where not only are there no tax breaks, but private property and capital investment are frowned upon and even criminalized.

Tax breaks are an attempt by liberal governments to use market forces to encourage investment in things that would otherwise seem unattractive to people with capital.

Tax breaks are, in fact, a testament to the attractiveness of capitalism. If socialism were as attractive a capitalism, people with capital wouldn't need tax breaks, to invest in things the government wants investment in. They'd happily pay the higher taxes, as a way of investing in government programs.

Socialism is attractive to a lot of people, of course, mostly the further away from home it is. The closer the government gets to you personally being required to give according to your ability and receive according to your need, the more you come to terms with your love of private property and the freedom to invest your capital how you - not your government - sees fit.

There is no question in my mind that capitalism works. People work out of self interest. But pure capitalism also is as much a failure as it is a succes if success is measured by helping the most amount of people.

It's like a super hot fire that flashes and consumes everything. It's great for a quick moment and then it is a disaster. There isn't a successful pure capitalist society on the planet. While I wouldn't want to live in a purely socialist society, a purely capitalist society is isn't any better. Inevitably the abuses of capitalism overwhelms that society leading to revolution and/or dystopia.

If capitalism is so perfect, why is the US population 5 times as wealthy as it was in the 1960s and yet poverty has skyrocketed? Why is the cost of building houses cheaper but the cost of shelter significantly higher.

Why are brands and companies that serve the general population struggling and those selling luxury items prospering? Why has car ownership gone down and private jet ownership gone through the roof? Why has the number of private boats over a hundred feet in length multiple times greater than it has ever been?

I've spent a lot of time trying to rethink capitalism. How can we keep the best aspects of free markets and capitalism and still serve the greater good? There are some good ideas advocating Capitalism 2.0.