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View Diary: "Fix the Debt" CEOs Enjoy Taxpayer-Subsidized Pay (108 comments)

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  •  If a company pays it's CEO an extra (7+ / 0-)

    $100 million per this "loophole", the company gets to claim the amount as an expense, lowering their tax bill. The CEO is 1099'ed for the same amount, and must pay ordinary income taxes on that amount. So there is no taxpayer subsidy. In fact, with marginal tax rates higher for individuals than for corporations, the taxman actually benefits from higher CEO pay. It may be distasteful that some CEOs make this much, but as long as it is in the form of cash (thus ordinary income), it just is not true that we the taxpayer foot part of the bill.

    •  not quite correct (17+ / 0-)

      since it is in the form of stock options, the CEO is able to receive the compensation at the cost of exercising the option, not the actual value of the compensation.  It is still being subsidized by the taxpayer.

      Further, were it not exempted from the $1 million limit, the corporation would also be paying taxes on the stock options

      and if you read the report, you will see the games being played so that the compensation is quite often in no way related to the actual performance of either the company or the stock.

      "We didn't set out to save the world; we set out to wonder how other people are doing and to reflect on how our actions affect other people's hearts." - Pema Chodron

      by teacherken on Thu May 02, 2013 at 04:03:15 AM PDT

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      •  Stock options are a specific (4+ / 0-)
        Recommended by:
        gravlax, Sparhawk, Dburn, VClib

        way of paying people. But even with stock options, the amounts deductible by the company and the amounts subject to tax liability by the employee are equal. If the employee exercises the option and holds the stock long enough to take advantage of long term capital rates, then there is a gap for the IRS. But that has nothing to do with CEO pay and everything to do with the existence of capital gains rates. In all of these situations, there is no "loophole" in the way people usually understand loopholes - that someone is taking advantage of something in order to pay less than everybody else.

        The $1M non-deductibility law was stupid from its inception; Congress knew when it passed it that few individuals make more than a million in salary. Once it passed, within a nanosecond, virtually nobody in the country had a salary over a million. The whole thing was, and was designed to be, a publicity stunt.

      •  stock option exercises are W2 income (7+ / 0-)
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        gravlax, Sparhawk, doc2, VClib, marleycat, Balto, Dburn

        just like salary.  as doc2 notes, taxpayers are net winners.  the tax benefit to the company will be 35%, while the tax hit to the CEO will be 39.6 + Medicare (3.8%).  that's a pretty big difference.

        •  So this part of the report is flat out false: (6+ / 0-)
          Recommended by:
          gravlax, doc2, VClib, Kimbeaux, nextstep, Dburn
          If executives hold onto their shares for more than two years after the grant date and more than a year after the exercise date — the point at which  the stock is transferred to the executive —  they pay only the long-term capital gains tax rate on this income.
          I know tax is complicated, but it's not that complicated.  The piece is describing "incentive stock options."   ("ISOs") Incentive stock options are pretty rare birds in exec comp for two reasons:

          - there's no deduction for the company.
          - Grants of ISOs are limited to $100,000 vesting per year.  

          So if we're talking about companies taking big deductions (over and above our 162(m) limit of $1MM) for big executive pay, we're pretty clearly not talking about ISOs, but rather talking about "nonqualified stock options" which, as noted above, are W-2 wages taxed at top marginal rates and subject to our 2.35% medicare tax on taxpayer and 1.45% on the employer.

        •  Show me the returns... (3+ / 0-)
          Recommended by:
          caul, Kimbeaux, elwior

          ...just show me that the CEO of US Healthcare pays a 39.6% federal income tax rate on that $100 million dollars. I'll believe it when I see it.  

          •  I've done returns like that. (3+ / 0-)
            Recommended by:
            Balto, nextstep, VClib

            They do indeed pay a mammoth amount of tax.  

            The thing is that we know what kind of comp they're getting so we know how it's taxed.  You can be reality based or not, but unless the CEO of US Healthcare is just illegally evading taxes, then s/he's paying top rates on the vast majority of the taxable income (which is closer to 45% when you add FICA & the effect of phased out deductions, so put it at around w/ 47-49% w/ state tax).  

            •  lol (4+ / 0-)

              you need to buck up on your deductions if you're doing returns for wealthy people paying 40+% net taxes.

              the only times i've seen numbers that high are for certain mid-low level (not über wealthy) guys in Cali and NYC, around the 500K mark, they can get nailed.

              but these CEO type guys making 100 million, 200 million is are  not paying anywhere near 40% and i'm willing to bet you've never handled a super wealthy client if yo'ure claiming they pay that kind of effective tax.

              Deficits don't matter, jobs do.

              by aguadito on Thu May 02, 2013 at 09:15:18 AM PDT

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            •  I agree with mammoth (0+ / 0-)

              But this volleying is about 39.6% federal income tax. We all know everyone pays other state, local, school, sales, FICA, Medicare, etc. taxes and they add to the total.

              Since you've done returns like that, just tell us that the average Federal income tax rate for 10 of the high income clients is X%.  

              Mr. Romney reported something like 14% for the single year he released.  If the others were higher we probably would have seen those too, right?

              I think we are all pretty much on the same page here anyway.  

        •  yea right (1+ / 0-)
          Recommended by:

          as if because so many companies are facing a 35% effective tax. and so many rich people facing a 39% tax (sarcasm).

          the point is the deductibility goes into perpetuity down to the individual who is rich who deducts so much that their effective rate is so far below the statutory.

          Deficits don't matter, jobs do.

          by aguadito on Thu May 02, 2013 at 09:10:40 AM PDT

          [ Parent ]

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