Final answer:
The Correct option is 3). The 1 million executive salary deduction limit hasn't significantly impacted the incomes of top executives because performance-based incentives, which make up a large portion of their compensation, aren't subject to this limit. Tax code complexities and different forms of income also play roles in preserving high levels of executive pay.
Step-by-step explanation:
The reason the 1 million executive salary deduction limit has not had a significant impact on the income of the highest executives of publicly traded companies is primarily because performance-based incentives are not subject to the limit. While the $1 million cap on salary deductions for tax purposes seems like it would restrict executive compensation, in reality, executives receive a significant portion of their compensation through bonuses, stock options, and other forms of performance-based pay that are not capped by this provision. Hence, despite the cap on the tax deductibility of salaries, total compensation packages have continued to grow significantly.
Additionally, the complexity of the tax code often provides various deductions, credits, and incentives that can impact the effective taxation rate. The very high income of some executives is often the result of capital gains, dividends, and other investment income, which can be taxed at different rates than salary income. Moreover, the tax brackets and adjustments post-2017 Tax Cuts and Jobs Act discussions highlight that top income earners continue to carry a larger portion of the overall income tax burden, even with the preferential treatment on specific forms of income.