Final answer:
The employer does not always receive a deduction for total compensation paid to a CEO due to tax law limitations. While payroll taxes are split between the employer and employee, economists argue that employees might indirectly pay the full amount through lower wages. The deductibility of CEO compensation is governed by specific tax rules.
Step-by-step explanation:
The statement that an employer always receives a deduction for total compensation paid to a CEO is false. There are limitations and regulations that apply depending on the circumstances and type of compensation. According to the tax law, there are instances where compensation in excess of certain amounts to a covered employee of a publicly traded company may not be deductible. Additionally, there are different types of taxes involved in employee compensation.
When dealing with employee wages, employers withhold taxes such as social security and Medicare, known as payroll taxes. These taxes are split between the employer and the employee, with the employee seeing 6.2% deducted from their paycheck for Social Security, and 1.45% for Medicare. Interestingly, economists suggest that the employer's portion of the payroll taxes could be factored into lower wages for the employee, indicating that employees may effectively bear the cost of the full payroll tax.
Overall, employer-based deductions including the funding of social security and other insurance programs may not always translate to a deduction for CEO compensation. Specific tax rules govern the deductibility of such compensation.