Dave Camp, the Chairman of the House Ways and Means Committee, has issued his proposal to revamp the U.S. tax code. One part of the reform would change the current tax code’s treatment of executive compensation. In order to support the changes to the structure, many credits and deductions are to be reduced or eliminated. One of these reductions will be 162(m), which provides corporations income-tax deductions for their top executives’ non-performance based pay exceeding $1 million USD. Under Camp’s plan, U.S. companies will be prohibited from taking such deductions, even if the pay is performance-based. This change is to raise more than $12.1 billion dollars over 10 years. Furthermore, Camp’s plan would modify the current Section 409 and make it tougher for companies to set up deferred compensation packages and for companies to provide employees with “excessive” retirement benefits. However, many experts believe that corporations will figure out more sophisticated work-arounds or simply pass on the cost to shareholders.
High CEO Pay Would Raise Company Tax in Republican Plan (Bloomberg)
Dramatic Changes to Code Sections 409(A) and 162(m) Proposed by Republican Ways and Means Chairman (Groom Law Group)