The Politics of Executive Pay

March 29, 2011

Today, the demand for wealth redistribution comes clothed in populist appeals to the unfairness of the gross disparity between executive pay and that of the average worker.  This claim resonates well in the press, but efforts to redistribute wealth through taxes, mandatory public disclosure and corporate governance "reforms" have all failed.  Nevertheless, compensation politics continues unabated, as demonstrated by the latest fight over the Bush tax cuts, says Jerry W. Markham, a professor of law at Florida International University's College of Law.

  • The "progressive" income tax is based on an ability-to-pay principle -- that is, the wealthy's higher income is reason enough for their being assessed higher tax rates.
  • Unsurprisingly, the wealthy have proved unwilling to part with their wealth and can avoid the worst effects of disproportionate taxes through various tax shelters.
  • Anticipating the Laffer curve theory that lowering taxes can actually generate more revenue for government, then-secretary of the treasury Andrew Mellon convinced Congress in the 1920s to lower the top income tax rate on investment income from 65 percent to 24 percent.
  • Despite the cut, Mellon was able to reduce the national deficit.

The dream of wealth redistribution from the business class was a disaster under the harsh lash of communist ideology.  It has also failed to date under the modern doctrine of "social justice."  Despite all the efforts of the wealth redistribution crowd, the concentration of wealth in the United States is now at the highest level since 1929, says Markham.

Source: Jerry W. Markham, "The Politics of Executive Pay," Regulation Magazine, Spring 2011.

For text:

http://www.cato.org/pubs/regulation/regv34n1/regv34n1-7.pdf 

 

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