There are only two things that a company can do with its profit: 1. Invest the proceeds back into the company. 2. Pay profits out to the shareholders. That

There are only two things that a company can do with its profit: 1. Invest the proceeds back into the company. 2. Pay profits out to the shareholders. That is it. These days, companies tend to do more of #1 and less of #2 -- they define "investing the proceeds back into the company" as increasing the salaries / benefits of the company's top executives. Historically, the US government foresaw this problem of too much power in the hands of too few people, both in the government itself, and in the private sector. When the Federal Income Tax was originally implemented it stated that all businesses would be liable for taxes, and only the wealthiest people (read == the "moguls", back in the day) would be responsible for paying taxes (http://news.ycombinator.com/item?id=2783480 http://news.ycombinator.com/item?id=2783480). Think about the underlying brilliance of this plan: income taxes are tiered, based on profit (the more you make, the more you pay). If a company was making excessive profit, it could do one of two things to "decrease" the tax burden: hire more people, or create a "market" for stocks that can reward the common Joe. The original income tax laws laid out would have allowed a company to pay someone $100K (in 2011 dollars) tax-free. However, that $100K, if kept as "profit" for the company would be subject to Corporate income tax. (Q: Guess who voted NO on letting shareholders vote on executive compensation? (Jul 2009)) Hint - http://www.ontheissues.org/ http://www.ontheissues.org/ ) (A: the speaker of the House). When shareholders aren't allowed to regulate their "ownership" of a company (especially when it's just tiny percentage), they don't get a say on how those profits are used, and executive salaries continue to bloat. Those at the top whine, complain that they are the "job creators", and should not be subjected to such taxation. But this is exactly what is supposed to happen: their salaries would not be so high if the companies they controlled were not doing so well. If they're doing well, they should be either hiring more people (people with jobs would be less reliant on government assistance), OR gradually increasing the well-being of shareholders by paying out dividends to those who own only a tiny fraction of the company. But, it's not working out like that. The checks and balances that the founding fathers put into place to prevent the notion of absolute power corrupting absolutely have become weighted down by the greed of a few.