from Follow the Money

A fringe benefit from over-paid CEOs

July 9, 2006 5:09 pm (EST)

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Blog posts represent the views of CFR fellows and staff and not those of CFR, which takes no institutional positions.

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Budget, Debt, and Deficits

CEOs do still pay taxes.

Edmund Andrews in the New York Times:

The main reason [for the smaller than expected deficit] is a big spike in corporate tax receipts, which have nearly tripled since 2003, as well as what appears to be a big rise in individual taxes on stock market profits and executive bonuses. ....

Corporate tax payments are expected to exceed $300 billion, up from $131 billion three years ago. The other big increase is an extraordinary jump in individual taxes that were not withheld from paychecks, usually a reflection of taxes on investment income and executive bonuses.

Though I am pretty sure executives wouldn't pay taxes on their bonuses if the Club for Growth had its way.    It is also ironic – at least to me – that the corporate income tax is bailing out the Bush Administration.   Particularly since Paul O’Neill wanted to abolish it.  Double-taxation, you know.

As DeLong notes, Andrews over-states the amount of good news by accepting the Administration's inflated baseline forecast.  But he also highlights one issue that I think deserves a bit more attention. 

Tax revenues increasingly are a function of stock market moves, which influence things like amount of income CEOs get from exercising their options.  That seems likely to be one reason why tax revenue volatility has increased over the past decade.

Over the past decade, tax revenues have become much more volatile, alternately soaring and plunging in the wake of swings in the stock market and repeatedly defying government projections.

Worth remembering.   Some of the gains that the US is now enjoying may prove rather ephemeral.  

Oil states have long had to manage oil-related revenue volatility.   The United States' finance-driven "intangible" economy --  some might say that is just a fancy way of labelling an economy specialized in exporting debt -- may have to learn how to manage revenue volatility that stems from financial volatility.  Just a thought.

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Budget, Debt, and Deficits