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An idea worthy of retirement?

John Dimsdale Jan 29, 2007

KAI RYSSDAL: The Senate picked up its debate on raising the federal minimum wage. Senators have added $8 billion worth of tax breaks for small businesses to help defray the cost of raising those salaries.

And they’ve gone after plush retirement nest-eggs for corporate higher-ups.

But Marketplace’s John Dimsdale reports the Senate proposal doesn’t have much support, even among advocates of limiting executive compensation.

JOHN DIMSDALE: One way corporate fat-cats minimize their taxes is by steering big chunks of their pay into tax-deferred retirement accounts.

The Senate’s minimum wage bill caps the amount of money that can be shielded from taxes at a million dollars a year, or the average five-year annual pay package — whichever is lower.

Seems like a reasonable plug of a tax-shelter loophole. But Nell Minow of the Corporate Library says it’s the wrong way to go.

NELL MINOW: Well, it’s aimed at the right people, but it’s a terrible idea. They’re just going to create incentives for the pay packages to migrate to other kinds of pay, and so it won’t create any additional revenue whatsoever. And it’s certainly not going to solve the problem of excessive pay.

Minow says it’ll just divert retirement packages into larger paychecks or stock options.

And Charles Elson, a corporate governance professor at the University of Delaware, says shareholders will pay the consequences.

CHARLES ELSON: Every time we attempt to solve a problem through tax policy, we end up creating about 10 other problems. Which is why we need to focus on the real root cause of the problem, which has to do with overreaching CEOs, and actually more importantly, passive boards. That’s the solution.

Supporters of the Senate compensation cap say higher taxes on executives will raise about $800 million in revenue over the next decade, helping to defray the bill’s small business tax breaks.

Senate leaders hope for a final vote on the minimum-wage proposal this week. The bill then travels back to the House, where members must agree to the changes.

In Washington, I’m John Dimsdale for Marketplace.

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