Senators To Target
Deferred Pay May Be Capped
By Lori Montgomery and Jeffrey H. Birnbaum, Staff Writers
Wednesday, January 17, 2007
The Senate Finance Committee is considering a proposal to
sharply limit the earnings corporate executives and other
highly paid employees can place tax-free into deferred
compensation plans, one of the most popular executive
benefits in corporate America.
Under the proposal, expected to be discussed today by
committee members, an individual taxpayer could defer no
more than $1 million annually in compensation, beginning
this year. The shift in tax policy would be likely to
affect top executives at hundreds of corporations and would
raise taxes on some of the nation's wealthiest workers by an
estimated $806 million over 10 years.
The proposal tracks rhetoric that some Democrats employed
during the midterm elections, when they portrayed the
Republicans who controlled Congress as being too close to
special interests and the wealthy. It also offers a
response to controversies that have erupted over executive
pay in recent months, including scandals over backdated
stock options and multimillion-dollar compensation packages
paid to current and former corporate chieftains.
The proposal is among more than a dozen provisions aimed at
shrinking corporate tax shelters and closing tax loopholes
that Chairman Max Baucus (D-Mont.) is expected to propose
when the committee meets today, Finance Committee aides
said. Together, they would boost federal tax revenue by
more than $8 billion over a decade, according to preliminary
committee estimates -- nearly enough to pay for a series of
tax breaks Baucus and others want to push through Congress
for businesses likely to be hit hard by a proposed increase
in the minimum wage.
Last week, the House voted to raise the minimum wage to
$7.25 an hour from $5.15, the first such increase in a
nearly a decade, making good on one of the Democrats'
The minimum-wage increase faces difficulty in the Senate,
however, unless it is accompanied by tax breaks for small
businesses, according to a leadership aide. On Friday,
Baucus and the senior Republican on the Finance Committee,
Sen. Charles E. Grassley of Iowa, unveiled a package of
"small-business tax incentives" that would extend credits
for employers who hire former welfare recipients and change
the tax code to simplify bookkeeping for certain companies,
among other provisions.
It is estimated by the committee that that package will cost
$8.3 billion over 10 years. Because Democrats have promised
not to increase the deficit, that sum must be offset by
spending cuts or tax increases.
In addition to limiting deferred compensation for
executives, the committee is expected to target several
controversial corporate tax shelters, as well as Americans
who renounce their citizenship for tax reasons. But the
deferred compensation provision appears likely to generate
alarm among business leaders.
Limiting deferred compensation would be "earthshaking" to
American executives, said Patrick McGurn, executive vice
president of Institutional Shareholder Services in
"A lot of executives are deferring the lion's share of their
compensation these days. And the typical executive at a
Fortune 100 company makes well over $1 million. So there is
a huge amount of compensation that would go into deferral
accounts that could not be deferred if the tax code were
changed," McGurn said.
Business lobbyists reacted to the proposal with deep
"There are lots of technical problems with this. For
instance, we're not sure what the definition of deferred
compensation is," said Lynn D. Dudley, a vice president of
the American Benefits Council, an advocate of
employer-sponsored benefit plans. "It makes sense to me to
have this discussion; Congress is sensitive to this issue,
and we want to work with them. But more needs to be done to
vet the practical implications of this."
Other lobbyists were surprised at the measure, saying they
had not even known it was under discussion.
"I didn't know it was coming," said Dan Danner, executive
vice president of the National Federation of Independent
Business, a small-business lobby. "It's not something that
we proposed or had anything to do with."