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The Misuse of Tax Incentives to Align Management-Shareholder Interests

By James R. Repetti

Abstract

The U.S. tax system contains many provisions which are intended to align management of large publicly traded companies more closely to stockholders. This article shows that many of the tax provisions that have been adopted are of questionable effectiveness because they fail to address the complexities of stockholder-management relations in attempting to motivate management to act in the best interests of stockholders. The article proposes that rather than Congress attempting to identify the best way that it can use the tax system to motivate management, Congress should eliminate tax provisions which subsidize management\u27s inefficiencies in order to encourage stockholders, themselves, to find the best ways to motivate management. The article identifies three features in our tax system that subsidize managerial inefficiencies and that Congress should eliminate: (1) the preferential tax rate for capital gains, (2) the step-up in basis for stock at a stockholder\u27s death, and (3) the lower tax rate for corporate taxable income as compared to the rate for individuals

Topics: tax, stockholders, publicly traded companies, capital gains, taxable income, corporate tax, tax incentives, Commercial Law, Contracts, Corporations, Economics, Employment Practice, Government Contracts, Labor Law, Law and Economics, Law and Society, Law and Technology, Legal Analysis and Writing, Legal Education, Legal History, Legal Profession, Legislation, Organizations, Partnerships, Politics, Practice and Procedure, Professional Ethics, Science and Technology, Secured Transactions, Taxation, Taxation-State and Local, Business Organizations Law, Commercial Law, Contracts, Economics, Government Contracts, Labor and Employment Law, Law and Economics, Law and Politics, Law and Society, Legal Education, Legal Ethics and Professional Responsibility, Legal History, Legal Writing and Research, Legislation, Litigation, Organizations Law, Science and Technology Law, Secured Transactions, Taxation, Taxation-State and Local
Publisher: Digital Commons @ Boston College Law School
Year: 1997
OAI identifier: oai:lawdigitalcommons.bc.edu:lsfp-1089
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