A proposal to cap the amount of pay that executives can defer
tax-free each year has been dropped from legislation that would
raise the minimum wage, but the idea may resurface in future tax
bills.
House Ways & Means Committee Chairman Charles Rangel, D-New
York, and Senate Finance Committee Chairman Max Baucus, D-Montana,
reached an agreement late Friday, April 20, on $4.8 billion in tax
breaks for small businesses to help offset the costs of raising the
minimum wage to $7.25 from $5.15 over two years.
The pact was a
compromise between the $8.3 billion tax package the Senate included
in its minimum wage bill and the $1.3 billion approved by the House
in its version. The measure has been added to a bill that would
provide emergency funding for the war in Iraq.
The Iraq bill is at the heart
of a showdown between congressional Democrats and the Bush
administration over troop withdrawal timelines linked to the war
funding. If Democrats and the White House reach an impasse, it is
possible that the minimum wage piece of the Iraq measure would be
voted on separately.
Regardless of its form, the minimum wage bill will not include
the executive compensation proposal, which would have limited the
amount of pay that could be deferred tax-free each year to $1
million or the five-year average of an individualfs salary before
the deferral, whichever is less.
gWe have reached the final resolution—and I mean final—on a
package of small-business tax credits that will enable us to pass
the first increase in the federal minimum wage in nearly a decade,h
Rangel said in a statement.
Another provision that Rangel and Baucus scotched was one that
would have expanded the definition of a companyfs five
highest-compensated employees. Instead of just including corporate
officers, it would have encompassed anyone in the firm making one of
its top five salaries. A company would be limited to an annual $1
million cap on tax deductions it could take on the pay of
professionals in the top pay category.
The proposals bit the dust in part because they were only in the
Senate bill. The final compromise revolved around tax increases that
both the House and Senate included in their packages.
But there was also worry that the popularity of deferred
compensation meant that a cap would reach far lower into a
corporation than the C-suite.
gThe provision was not included in the final package because
there were concerns about the language it contained and its
potentially broad impact on rank-and-file workers,h says Matthew
Beck, a spokesman for Rangel.
The proposal, however, may be part of a tax package later this
year.
"The deferral provision or one like it may be seen in subsequent
legislation,h says a Baucus aide.
When the idea percolates again, business lobbyists will be ready
to defend the practice of paying later for work done now. Advocates
argue that deferred compensation increasingly is a vehicle for
workers to save for retirement.
They also say that deferral ensures an executive will work in a
companyfs long-term interests because that person wonft get paid if
the firm falters in the future.
Proponents of limiting deferred compensation ghave yet to show
some abuse theyfre trying to address with this provision,h says Bob
Shepler, senior director of government relations at the National
Association of Manufacturers.
The proposal was prompted in part by congressional concern about
soaring executive compensation that seems to be out of step with
company performance. Democrats have argued that exorbitant executive
salaries are incongruous with real wages for most workers that only
keep pace with inflation.
But Shepler asserts that putting off pay is helping a cross
section of the labor force.
gFolks are beginning to see that non-qualified deferred
compensation is good for employee savings,h he says.
An influential senator, however, is not enamored of the minimum
wage tax agreement.
gThis package is stripped of a lot of meaningful tax relief,h
said Sen. Charles Grassley, R-Iowa and ranking member of the Senate
Finance Committee, in a statement. gAnd missing are many of the tax
abuse crackdowns from the Senate bill. Apparently the lobbyistsf
crocodile tears over those crackdowns were effective.h
—Mark
Schoeff Jr.
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Communications Inc.
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