Research Handbooks in Corporate Law and Governance series
Edited by Randall S. Thomas and Jennifer G. Hill
Chapter 14: Taxing Executive Compensation
Glen Loutzenhiser The primary goal of any tax system is to raise money to pay for the services provided by the State. Ideally, in so doing, the tax system should operate in an efficient and fair way that does not favour certain taxpayers or economic activities over others, and the rules should be easy for taxpayers to comply with and government to administer. Tax systems can be (and are) used to advance other goals as well, such as redistributing wealth from the better off to the less well off in society. Tax also can be a powerful macro-economic tool – taxes can be raised to cool a charging economy, or, as witnessed recently in the US,1 taxes can be cut to stimulate investment and consumer spending. Finally, the tax system can be used as a tool of social policy, providing tax incentives to encourage desirable behaviour (eg tax credits for investing in ‘green’ technology) and tax penalties to discourage other behavior (eg ‘sin taxes’ on tobacco and alcohol). The price to be paid for pursuing social goals through the tax system, however, is a tax regime that inevitably is less coherent, more detailed and more complicated than it otherwise would be. Employment taxation is one area of tax law that has been particularly susceptible to political tinkering in the pursuit of goals other than raising revenue in the most simple, fair and economically efficient way possible. The UK employment tax regime, for example, contains a host of rules aimed at...
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