Friday, September 18, 2009

Atsa what I said: Dollas, Taxes

You know, I don't mind so much that people get paid oodles and gobs of money for doing things that companies think are worth that kind of compensation (although I do think that there are lots of people who could, say, run a major company like Home Depot, and do it for a whole lot less than the company is willing to pay (see, for example,  http://www.businessweek.com/investor/content/may2006/pi20060523_284791.htm).)

But I do kind of mind that you and I are covering part of the cost of that sinecure.

Compensation, including salaries and bonuses, are tax-deductible as business expenses. There is a limitation on deductions for amounts paid to the top 5 people (basically, the deduction's limited to $1,000,000, but there are easy ways around that bit of window dressing), but take a company like a major Wall Street brokerage, which is paying millions and millions of dollars in salaries and bonuses to all manner of Wunderkinder. Us ordinary taxpayers are covering about a third of those payments. The company pays huge amounts, and reduces its taxable income as a result; so it saves about 35% of the amount it pays out, in the form of lower taxes.

Let's put an end to that. Let's make a rule -- a simple rule -- that no compensation to any person in excess of, say, 250% the median national per capita income, can be deducted from the calculation of taxable income.

Here's how that works:

Let's say the median per capita income in America is $40,000; it's about that, last I heard. Now, two and a half times that would be $100,000.

Let's say Interglobal Conglomeration, Inc. pays Lucky Basterd $600,000 a year; and let's say Interglobal is taxed at 35%. By deducting Lucky's $600k, it reduces its tax bill by $210,000. That's how much more you and I have to fork over to Uncle Sam so that Lucky can have his Mercedes washed and waxed before the big party at the country club up in the Hamptons.

Under my proposed rule, Interglobal is still free to pay Lucky that $600,000; but it only gets to deduct $100,000 as a business expense. It now has to pay tax on the other $500,000, saving you and me and the next guy $175,000 every year.

Now, there are, believe it or not, more people than you might imagine making incomes of way more than 250% of the median per capita income. And they are, presumably, worth that money to their employers. So sure, their employers are, and ought to be, free to pay what it takes to get those people's services.

But the rest of us shouldn't have to share the cost.

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