16 01 2017

US Congress Receives Bill To Cancel CEO Tax Breaks

Legislation has been introduced in Congress to stop the unlimited US corporate tax deductions allowed for performance-based executive pay.

Lloyd Doggett (D - Texas), a member of the House of Representatives Ways and Means Committee, senator Jack Reed (D - Rhode Island), and Richard Blumenthal (D - Connecticut) introduced the Stop Subsidizing Multimillion Dollar Corporate Bonuses Act.

It was pointed out that, under current tax law, a publicly traded corporation is generally permitted to deduct the cost of compensation from its revenues, with limits up to USD1m for each of the company's most senior executives. However, that limit does not include performance-based compensation, which can generally be deducted without any limit. For example, "if a CEO receives USD1m in cash compensation and USD14m in a performance-based bonus in a given year, the public corporation's taxable income would decline by USD15m."

The Stop Subsidizing Multimillion Dollar Corporate Bonuses Act would allow publicly traded corporations to pay their executives as much as they want, but all annual compensation above USD1m million would no longer be deductible against US corporate tax. In addition, it would broaden the number of employees subject to the new rule from "the CEO and the 3 highest compensated officers" to "all current and former employees."

The Joint Committee on Taxation has estimated the Bill would increase tax revenues by over USD50bn over a 10-year period.