Why it’s hard to limit executive pay

Matt, Ezra, and Bob Frank, among others, have been talking about this topic.  Say we taxed rich bankers at 95 percent above a certain income level.  Salary income would be converted into capital gains.  We don't want to tax capital gains at 95 percent or even 50 percent.  Plus taxing unrealized capital gains — if you desire that the earners cough up the money now — involves other problems.

Of course some firms and sectors cannot equitize pay in this fashion.  A big implicit tax is then placed on such sectors.

You could work very hard to develop a tax code that will cover exactly the people you wish, at the margins you wish.  You could work very hard and still fail.

Looking for "longer-term incentives" is a sounder approach than trying to force "much smaller incentives."


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