House Democrats Campaign to Tie Executive Pay Tax Break to Minimum Wage Hike

July 18, 2014

Demonstrating the role executive pay will play in Democrat messaging for the fall elections, House Democrat Leader Nancy Pelosi this week announced the party's "Middle Class Jumpstart" campaign, which includes a bill that would make corporate tax deductions for executive compensation contingent on an increase in the hourly minimum wage.  Although the legislation has not yet been introduced, the CEO/Employee Pay Fairness Act, by Representative Chris van Hollen (D-MD), would reportedly condition a company's ability to deduct compensation in excess of $1 million for top executives under Section 162(m) of the Internal Revenue Code on the company raising the minimum wage for its employees to $10.10 or higher.  Section 162(m) currently allows companies to deduct compensation paid to the CEO and the top three most highly paid executives other than the CFO in excess of $1 million so long as the pay is "performance-based."  The provision has been targeted by Democrats and even some Republicans as a way to offset other spending.  Potential changes include eliminating the performance-based pay exception, capping corporate compensation deductions for all employees at $1 million, or eliminating stock options as per se performance-based pay.   In explaining the bill, Rep. van Hollen said "if you're a corporation, you cannot give your CEO and top executives—you cannot take a deduction for their pay over $1 million unless you're going to give your employees a raise. ... After all, the taxpayer should not have to subsidize big corporate CEO bonuses for corporations that are not providing their employees with a wage and pay increase."  Pelosi added that the bill is aimed at "giving America a raise, if we're going to give the CEO a raise."  The bill is not expected to move in the Republican-controlled House.