This week, in advance of the planned legislative effort to conduct a comprehensive overhaul of the U.S. tax code, Senators Jack Reed (D-RI) and Rep. Lloyd Doggett (D-TX) re-introduced legislation which would significantly reform the 162(m) tax code provision which allows companies to deduct pay for the CEO and next three highest paid executives in excess of $1 million so long as the pay is performance-based. Section 162(m) of the IRS tax code has been repeatedly targeted by Democrats and Republicans as a contributor for the growth in CEO pay since the early 1990s. Both Rep. Doggett and Senator Reed have already introduced the bill in past Congresses aimed at significantly curbing 162(m) in the past and Democrats have attempted to tie the benefits of 162(m) to other initiatives, like a raise in the minimum wage. Like past iterations of the bill, this Congress's version of the "Stop Subsidizing Multimillion Dollar Corporate Bonuses Act" makes three primary changes to Section 162(m):
- Expands the scope of corporations subject to 162(m) beyond just public companies to cover all corporations which file periodic reports with the SEC, such as those who have issued debt securities.
- Broadens the scope of the 162(m) limitation to all current and former employees. Currently, 162(m) applies only to the CEO and three highest compensated officers.
- Eliminates the exceptions for commission and performance-based pay.