A nice illustration of Unintended Consequences provided by the
Wall Street Journal, Kevin Drum, and Professor Bainbridge.
The WSJ printed an article
describing a massive shift in the past decade to dual pension systems,
one for ordinary employees, another for higher-ups.
For decades, executives relied on the same pension plan as other company
employees, so they had an incentive to make it generous. The shift
toward a dual system started in 1994, when Congress passed a law
intended to limit the cost to taxpayers of runaway executive pay. The
law barred companies from taking a tax deduction on compensation in
excess of $1 million a year for any current employee. The result:
Companies began setting up supplemental pension plans that encouraged
senior managers to defer compensation.
out the story contains "a hearty dose of cognitive dissonance
for well-meaning liberals." Populist legislation intended to
"do something" about "runaway" executive pay largely brought
about today's dual-track
Prof Bainbridge notes Kevin's cognitive dissonance
and brings on a couple of additional observations:
First, the 1994 tax change was effected not by some generic "Congress"
but by Bill Clinton and the Congressional Democrats over GOP objections.
Second, the Democrat tax change also was a major factor in the Enron,
WorldCom, and other scandals of the tech bubble period.
Good points all.
Unfortunately, the original WSJ article only mentions the 1994
in passing; the main thrust is summed up in the lead paragraph:
Rankled by the rich retirement payouts many troubled companies make to
executives, Congress is moving to block such companies from funding the
I. e., unintended consequences
of past populist tax legislation cause
problems, bringing demands for
more populist tax legislation today; which
will no doubt have its own set of unintended consequences;
which will bring more demands for populist tax legislation
in the future.
It's the circle of legislative
life. If they didn't do this, they'd have to go home, and that's
2006-01-30 8:44 AM EDT
Last Modified 2012-10-25 3:07 PM EDT