What impact would Congress have on corporations if it were to change the amount of tax-deductible executive performance-based compensation downwards from $1 million to $500,000? The portal to the upper 1% of household taxpayers in income is $500,000 in normal income. If Congress were to limit tax-deductible performance-based income to $500,000, the change would put an end to a large portion of the tax write-offs on executive pay by corporations. The JCT estimates $50 billion would be realized in a ten-year period. How serious is the skewing of income to a relative few to avoid corporate taxes? An IPS study found 25 of the 100 highest-paid corporate chief executives in the United States took home more in income than what their companies paid in 2010 federal income taxes.
As a part of the PPACA passed in 2010 this provision finally came into play in 2013. The provision “generated an ~ $72 million in additional tax revenue in 2013 from America’s 10 largest publicly held health insurance companies” as taken from “57 executives.” It is one of the lesser-known provisions of the PPACA which is increasing revenue to fund the PPACA. Sarah Anderson of the The Institute for Policy Studies just released the report of the impact of this provision for 2013. More of those healthcare companies will full under its impact in 2015 as the grandfathered bonuses pre-2010 expire created an ~$5 billion annually.
While it does not limit the amount of compensation to the top healthcare executives, the new performance-pay rule made taxable bonuses, stocks, etc. in excess of $500,000 taxable and down from $1 million previously. What companies could claim as deductible for executives dropped from 96% in 2012 to 27% in 2013 causing 10 corporations to owe an average of $1.3 million in taxes per executive. A similar provision with a broader scope is being considered under Senators Reid and Blumenthal’s Stop Subsidizing $Multimillion Corporate Bonuses Act (S1476).
Executive Excess 2014: The Obamacare Prescription for Bloated CEO Pay, Sarah Anderson, Sam Pizzigati and Marjorie Wood. Institute for Policy Studies August 27, 2014
Stop Subsidizing $Multimillion Corporate Bonuses Act Senator Reid and Senator Blumenthal