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senate Bill S. 1843

Eliminating Corporations' Ability to Deduct "Excessive" CEO Compensation From Their Taxes

Argument in favor

The bonus pay tax deduction is a loophole that essentially serves as a reverse wealth transfer from the poor and middle class to the ultra-rich — it should be closed as it’s both unfair and unjust to expect average Americans to subsidize corporate executives’ paychecks.

Christine's Opinion
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08/16/2018
Why do they make questions where a yes is no and a no yes? I oppose deductions of these CEO compensations.
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Jennifer's Opinion
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08/16/2018
The bonus pay tax deduction is a loophole that essentially serves as a reverse wealth transfer from the poor and middle class to the ultra-rich — it should be closed as it’s both unfair and unjust to expect average Americans to subsidize corporate executives’ paychecks.
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Scott's Opinion
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08/16/2018
CEOs are overpaid. The company should be forced to show value for the compensation. If they cannot deduct it they will be more likely to be forced to justify it.
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Argument opposed

Corporate executives’ pay is a matter for individual companies to set policy on internally. This is not an area where the federal government should play a role — especially since corporate board and shareholders already have the power to reduce executives’ pay on their own.

Mart's Opinion
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08/16/2018
How they spend the money is their business. It’s a business expense, it’s deductible. Now if you would tax the recipients of those bonuses correctly that would be an idea.
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TuckerWantsLiberty's Opinion
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08/16/2018
Where to begin? You don't get a say in what anyone (ANYONE, CEO or otherwise) gets paid. If an employer is willing to pay it and an employee is willing to take it, then you're a moron, a tyrant, or both if you prevent them. Second, whence comes the justification to use the tax system for social engineering? Taxation is evil enough on its face, but now you're applying extra evil to people and behaviors you don't like or understand. Third, this is how you cripple the American economy, by decapitating it. The market value of someone who can successfully coordinate tens of thousands of people to generate hundreds of millions of dollars of value for consumers is in the tens of millions. The ratio of that salary to the wage of the most replaceable employee is arbitrary and capping it is idiotic. "The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design" - F.A. Hayek. Take that quote to heart, central planners.
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Joanne's Opinion
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08/16/2018
Don’t you think corporations get enough already! Stop the corporate welfare and help the rest!
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bill Progress


  • Not enacted
    The President has not signed this bill
  • The house has not voted
  • The senate has not voted
      senate Committees
      Committee on Finance
    IntroducedSeptember 19th, 2017

What is Senate Bill S. 1843?

This bill — the Stop CEO Excessive Pay Act — would amends the Internal Revenue Code’s deduction for trade or business expenses to prohibit a deduction for excessive compensation for any employee of the company filing taxes. “Excessive compensation” would be defined as the amount by which services performed by an employee during the year exceeds the lesser of: 25 times the median of the compensation paid for services performed by all employees of the company during the tax year, or $1 million.

It would also amend the Securities Exchange Act of 1934 to prohibit an issuer from paying excessive compensation to an employee unless the compensation is approved by at least 50% of the shareholders. Monetary penalties would be imposed on issuers that violate this requirement. Penalties paid to the Securities and Exchange Commission (SEC) under this bill couldn’t be deducted from a company’s taxes.

Impact

Companies; corporate executives; Internal Revenue Service; and the Securities and Exchange Commission.

Cost of Senate Bill S. 1843

A CBO cost estimate for this bill is unavailable.

More Information

In-Depth: Sen. Kirsten Gillibrand (D-NY) introduced this bill to close the tax loophole that allows companies to deduct part of the amount they spend on executive compensation and require a shareholder vote to determine whether CEOs should receive substantial raises or bonuses:

“In the last few decades, while the middle class has been shrinking and workers' wages have hardly budged, corporations have been paying their CEOs higher and higher salaries -- more than 300 times higher than regular employees in some cases. In other words, too many corporations have stopped rewarding work, and it is harming our economy. This legislation would take away a major incentive that corporations use to pay extremely high wages to their CEOs, by putting a cap on the level of CEO pay that corporations can deduct from their taxes as a business expense. The government should not be subsidizing CEO pay at the expense of workers and the middle class.”

Ira Kay, writing in the Harvard Business Review, argues that government regulation of CEO pay is inappropriate and unnecessary, and has the capacity to do significant damage to companies:

“[L]egislating and regulating executive compensation has the capacity to do real damage. [R]esearch has shown that the traditional executive pay model using cash and stock incentives continues to work for the vast majority of companies. It motivates leaders to steer their companies toward high performance. Luck plays a part in whether or not the companies actually get there, but the pay-for-performance model certainly sets companies up to succeed. Our research shows that in general, high-performing companies’ CEOs get paid a lot, and low-performing companies’ CEOs get paid much, much less.”

Additionally, as Michael Dorff, a professor of law at Southwestern Law School points out, shareholders and corporate boards are the only people with the power to change CEO pay — and they seem to be okay with current pay levels:

“The people with the power to change CEO pay are corporate directors and, to a lesser extent, shareholders—and for the most part, they appear to be perfectly satisfied with current pay levels. The directors of large public companies approved huge average pay hikes for their CEOs this past year, and shareholders have approved some 98 percent of the pay packages they were asked to review since being given the power to do so a few years ago. Both groups are well aware that CEOs are paid much more than the median worker, but they believe that is what the market for managerial talent demands. In short, a CEO to worker pay ratio of 300-to-1 doesn’t faze them because they believe the right CEO is worth at least 300 median workers, and probably quite a few more.”

The AFL-CIOPublic CitizenAmericans for Financial Reform, and Americans for Tax Fairness support this bill. Frank Clemente, Executive Director of Americans for Tax Fairness, says this bill is needed to fix one of the worst tax breaks in the special-interest rigged tax code:

“The CEO pay loophole is one of the worst tax breaks in our special-interest rigged tax code. This tax deduction for bonus pay makes regular taxpayers subsidize the income of wealthy CEOs, who get paid 300 times more than the average worker takes home. And many of the big corporations these CEOs lead pay tax rates below what the middle-class pays, if they pay taxes at all. This tax loophole is a scam, and it must end!”

There is one cosponsor of this bill, who is also a Democrat.


Of Note: From the end of World War II through the 1970s, as the economy grew, workers were paid more and productivity increased. But in recent decades, worker pay has stagnated even as corporations have continued to pay their CEOs more. According to the AFL-CIO, the average CEOs of the largest corporations in the country make an average of $13.1 million a year, which is approximately 347 times what the average American worker makesIn 1978, CEOs earned an average of 30 times what their average employee made.

Over the past 10 years, taxpayers have paid $50 billion in tax subsidies due to the loophole that allows companies to deduct part of the amount they spend on executive compensation.


Media:

Summary by Lorelei Yang

(Photo Credit: iStock / roberthyrons)

AKA

Stop CEO Excessive Pay Act

Official Title

A bill to amend the Internal Revenue Code of 1986 to deny a deduction for excessive compensation of any employee of an employer, and for other purposes.

    Why do they make questions where a yes is no and a no yes? I oppose deductions of these CEO compensations.
    Like (129)
    Follow
    Share
    How they spend the money is their business. It’s a business expense, it’s deductible. Now if you would tax the recipients of those bonuses correctly that would be an idea.
    Like (50)
    Follow
    Share
    The bonus pay tax deduction is a loophole that essentially serves as a reverse wealth transfer from the poor and middle class to the ultra-rich — it should be closed as it’s both unfair and unjust to expect average Americans to subsidize corporate executives’ paychecks.
    Like (79)
    Follow
    Share
    CEOs are overpaid. The company should be forced to show value for the compensation. If they cannot deduct it they will be more likely to be forced to justify it.
    Like (43)
    Follow
    Share
    Duh. They get enough!! They take enough!! They steal enough!! Enough!!!
    Like (40)
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    We give corporations enough, they should have to pay some taxes. Republicans probably won’t vote for it though.
    Like (28)
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    Ridiculous compensation should not be tax deductible! Why are we subsidizing "trickle-up" wealth redistribution?
    Like (21)
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    How about a maximum wage? Top pay in the building can’t exceed 1000% of the lowest wage. Think about it you’ll understand that it’s a better way. Also give Medicaid to owners of business with less than 100 employees and to there employees.
    Like (14)
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    Where to begin? You don't get a say in what anyone (ANYONE, CEO or otherwise) gets paid. If an employer is willing to pay it and an employee is willing to take it, then you're a moron, a tyrant, or both if you prevent them. Second, whence comes the justification to use the tax system for social engineering? Taxation is evil enough on its face, but now you're applying extra evil to people and behaviors you don't like or understand. Third, this is how you cripple the American economy, by decapitating it. The market value of someone who can successfully coordinate tens of thousands of people to generate hundreds of millions of dollars of value for consumers is in the tens of millions. The ratio of that salary to the wage of the most replaceable employee is arbitrary and capping it is idiotic. "The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design" - F.A. Hayek. Take that quote to heart, central planners.
    Like (13)
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    Yes, limits need to be placed of tax loopholes that benefit the few and not the many.
    Like (10)
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    I can't believe we're even asking this damned question. Teachers can't deduct the cost of paper they shouldn't have to buy in the first place from their taxes, but we have to debate whether "corporate citizens" should have to pay taxes on their yearly CEO bonuses? When these asshats already earn over 900% of the US average wage per hour, and pay less than 1% of the US tax rate? No, these Corporate Citizens need to be subject to the new reinstatement of the 90% tax bracket instead: Anyone, corporation or individual, who has a billion or more in resources now officially has enough damned money, and they need to start paying 90% of all future profits back into the US economy. No excuses, no dodges, no loopholes, no sob stories. Let's start leveraging the real US welfare queens -- the Deadbeat Billionaire's Club -- into paying their keep the same as the rest of us!
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    If average, taxpaying citizens can no longer deduct ALL state and local taxes, corporations should lose this deduction. After all, OUR tax rates were not cut by 19%. Corporations are not, and never will be, benevolent creatures. They do not deserve over-protection by a government of, by and for the PEOPLE.
    Like (9)
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    Bottom line is that the people’s Tax dollars should not be used to subsidize Executive Compensation. Companies should carry the burden of their compensation alone. Imagine if the government limited compensation — companies would go apoplectic. The government shouldn’t limit nor should it enable or subsidize CEO/Executive compensation.
    Like (8)
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    Just another attempt of the socialist and communists among us trying to take what is not theirs out of jealousy.
    Like (7)
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    Don’t you think corporations get enough already! Stop the corporate welfare and help the rest!
    Like (7)
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    This basically says that companies should get a benefit for making the mistake of paying people too much? This is the dumbest thing I've ever heard.
    Like (7)
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    “Greed..IS NOT good” Don’t you think?
    Like (7)
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    The argument that a corporation will not attract the best people unless they offer these excessive salaries and other compensation feeds the attitude that these people are in fact better than the regular workers who in fact are the foundation or rock upon which that corporation would not exist without those workers. We should rethink how we pay for every person working for that business. The highest paid are often the least productive.
    Like (6)
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    Why wouldn’t it be. They got a huge tax reduction already - they do not need another tax break
    Like (6)
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    If we're going to eliminate anything it should be elimination of income and business tax completely.
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