The Meddling has Begun

So, the Senate is considering a $1 million dollar limit on tax-deferred pay.

This is a really dumb idea.

What is Congress doing mucking around in company pay? That’s a matter best left to a company’s shareholders, executives, and board.

Sen. McCain said as much during our interview last night, and President Bush had the same view when I interviewed him last year. Of course, they both acknowledged that some pay packages were excessive, but agreed that the government should not step in and regulate them.

About a decade ago, President Clinton and the Congress limited the tax deductibility of corporate pay to $1 million dollars. The end result was that this spurred the movement towards stock options to get around the Congressional regulation. Well, you can bet your bottom dollar that if this goofy $1 million dollar limit on tax-deferred pay gets passed into law, corporations will find a way to get around it.

It’s a clear case of congressional over-regulation.

It also means that deferred comp above a million bucks would be subject to taxes as high as 35 percent a year. (Rather than the 15 percent rate that would apply to capital gains accrued from stock options that finish in the money over a period of years.)

The Dems have been in power less than a month and they’re already meddling in the governance affairs of businesses. They have already raised taxes (royalty penalties) on energy companies.

These are bad trends—anti-growth, anti-incentive trends.