There already has been a lot of discussion about the elements anticipated to be part of President Joe Biden’s American Families Plan, including some of the tax increases being considered to pay for the proposed “human infrastructure” benefits. One question largely undiscussed to date is to what extent will proposals affecting executive compensation be utilized to help offset the spending provisions of the American Families Plan?

We think executive compensation will almost certainly be included in the American Families Plan as a revenue raiser. The question is, how?

To get an idea of what might be considered, we reviewed the last half dozen years to see what types of executive compensation legislation lawmakers have proposed and focused on those that would be revenue raisers. We observe that proposals are often repeated, perhaps with some modifications, after a new presidential administration is elected. The following are a few of the prior years’ proposals we think could be included as revenue raisers in the American Families Plan:

• Taxation of Deferred Compensation:
  • Require nonqualified deferred compensation and equity-based compensation to be included in gross income when it vests, rather than when it is paid.
  • Treat most equity compensation as deferred compensation and require such deferred compensation to remain at risk of forfeiture as a condition of tax-deferred treatment.
• Limit Corporate Tax Deductions for Compensation Paid to Executives:
  • Disallow an employer tax deduction for employee compensation in excess of a threshold, where the threshold could be a stated dollar amount, which may or may not be annually adjusted, or a multiplier of the median compensation paid to employees, where the median may or may include the compensation paid to the highest paid employees.
  • Disallow an employer tax deduction for employee compensation in excess of a stated threshold unless certain criteria are met, such as (i) the employer makes a profit sharing distribution to rank and file employees, where the amount is some minimum percentage of gross profits or ratio to what is paid to executives or (ii) the employer provides some minimum annual pay increase or (iii) the compensation in excess of the threshold is approved by a super majority of stockholders or (iv) there is some proven increase in jobs employing U.S. workers with some minimum pay level.
  • Expand the $1 million deduction limitation to apply to the compensation of all employees and a broader group of entities.
• Pay Ratio Affects Corporate Tax Rate:
  • Incrementally increase the corporate tax rate for corporations whose CEO (and possibly other executive officers) to median compensation ratio is more than a stated ratio. The determination of the median compensation amount may or may not include the compensation paid to the highest paid employees.

Whether it includes one or more of these prior proposals or something entirely new, we expect Congress will consider changes to executive compensation throughout the process of negotiating the terms of the American Families Plan.