Why Is CEO Pay In the COVID Relief Bill?

Tim Noah writes in The New Republic about how CEO pay ended up in the COVID relief bill, an unfortunate reminder of the failure of 162M, the last time Congress tried to limit CEO pay through the tax code:

Everybody knows that top corporate executives get paid much more than they’re worth—and that ever-rising income inequality is the result. It’s tempting to conclude that the federal government has never tried to do anything about this, but that isn’t quite right. It’s tried a little bit, and it’s failed. An executive-pay tax included in the recently enacted Covid relief bill furnishes a denouement to this sad story.

The provision, tucked quietly into the $1.9 billion stimulus measure,increases from five to 10 the number of executives at a given firm for whom any compensation above $1 million may not be deducted from the firm’s taxable income. Executive compensation is typically considered an expense, not revenue or profit, but at a certain point the Internal Revenue Service throws up its hands and says, in effect, “Don’t tell me that to run your company you need to throw all this money at these guys.” (And yes, it’s almost always guys.) For any firm’s five highest-paid executives (or 10 highest-paid, under this new provision) who pull down more than $1 million, corporations (banks, mostly, and some tech companies) pay taxes on that portion of those salaries above $1 million. That additional cost raises by about 25 percent the total compensation paid out to these executives in excess of $1 million.

The Joint Tax Committee calculates that by increasing this unprotected class of executives from five to 10, it can raise $7.8 billion over a period of 10 years. That return is supposed to partly offset the Covid bill’s $23 billion bailout for several insolvent union-negotiated multiemployer pension funds (chiefly the Teamsters’ Central States Pension Fund) that risk bankrupting their quasi-governmental insurer, the Pension Benefit Guaranty Corporation, if they go belly-up. In congressional budgetese, the change in the tax status of overpaid executives is a “pay-for.”

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