Pending Tax Reform May Eliminate Some Popular Pay Mechanics

December 15, 2017

While the current tax reform compromise announced December 13 may boost pay overall, it could also eliminate certain familiar compensation tax breaks for companies and their executives. Within 24 hours of the announcement, The New York Times reported that the bill’s architects were still looking for savings. In a December 8 announcement made one week after the Tax Cuts and Jobs Act passed the Senate with 4 amendments, the leader of the conference committee and original sponsor of the bill, House Ways and Means Committee Chair Kevin Brady (R-Texas), triumphantly promised that the final version of the bill will “deliver more jobs, fairer taxes and bigger paychecks.”

“More jobs” refers to a lower corporate tax rate. Both the House bill and the Senate versions reduced that rate from the current 35 percent to 20 percent, but the new compromise version stands at 21 percent.

“Fairer taxes” may refer to changes in tax practices perceived by some to be loopholes. The Senate left untouched the House provision that would eliminate the independent-committee exception to the $1 million deductibility cap under Section 162(m) that has been in place for a quarter century. Also, a successful Senate amendment proposed by Sen. Roy Blunt (R-Mo.) (modifying one proposed by Senate Majority Leader Mitch McConnell (R-Ky.)) would put curbs on deferred compensation. Both of these changes have a good chance of surviving post-conference negotiations, as they are revenue-positive to the deficit-drained U.S. government and there is little popular support for the deductions they eliminate. 

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