Why might salary be preferred to deferred compensation even if the employee’s tax rate is falling over time? Illustrate your answer using the changes in tax rates introduced in the TRA 86. Was salary preferred for both higher- and lower-compensated employees?
Answer to relevant QuestionsIn determining the tax advantage of a current salary contract versus a deferred compensation contract, why is it useful to set the contractual terms so as to hold one party indifferent to the choice of the contract? Does it ...Is each statement true or false? a. The expected return on stock appreciation rights always exceeds the expected return on the underlying stock. b. The financial reporting differences for compensating employees with stock ...Suppose you are an employee of Pactruck who just received 10,000 shares of restricted stock that vest in 4 years. Your current and expected tax rate on ordinary income is 35% and on capital gains is 15%. The stock is ...Suppose you are a high-level employee of Drugstore.Com. You currently hold 50,000 NQOs, each with an exercise price of $20. The options vest—that is, you are no longer restricted from exercising them—in 1 month. Your ...How does the length of time that the pension contribution will remain in the pension account affect whether pension is preferred to salary? Under what conditions is the duration of the pension investment irrelevant?
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