This article will be published in the Lewis & Clark Law Review (2009) (forthcoming)


Congress has enacted a number of tax provisions that aim to penalize companies and their executives when the executive is paid more than Congress thinks is desirable. Congress was motivated to enact these provisions by intense public sentiments regarding executive compensation levels during times of economic turmoil. This article demonstrates, however, that not only are these provisions ineffective at reducing executive compensation levels, but they penalize the wrong people. This article reveals that the penalties do not significantly fall on the executives that Congress was targeting with enactment of the penalties. Instead, these penalties impose costs on a variety of constituencies who are, generally speaking, ordinary Americans. Thus, the actual effect of the tax penalties is to harm the people who were the catalyst for enactment of the tax penalties in the first place.

Who bears the financial burden and is penalized by tax penalties on executive compensation has received almost no attention in the legal literature. Consideration of this issue, however, is of contemporary relevance as Congress has been considering expanding the use of tax penalties in an effort to not only curtail executive compensation but also to raise federal revenue. The article concludes with suggestions for dealing with the underlying problems regarding executive compensation levels in place of enacting tax penalties aimed at the symptoms of these problems.


Law and Economics | Tax Law

Date of this Version

April 2009