Recent Legislative Developments - Deferred Compensation for Senior Executives
July 2002
We reported to you earlier this month that Bill Thomas, chairman of the U.S. House Ways and Means Committee, had introduced a bill that included adverse changes to the tax rules applicable to non-qualified deferred compensation. Thomas’s legislation, the American Competitiveness and Corporate Accountability Act of 2002, is controversial in several aspects unrelated to deferred compensation and is unlikely to be enacted this year. However, it appears that Thomas’s proposals on deferred compensation will likely be acted on by the U.S. Senate and possibly enacted into law in the next two to three months.
Minimum Wage Legislation
The likelihood of early action on Thomas’s deferred compensation proposals arises because of the desire of Senate Democrats to enact an increase in the minimum wage this fall. Senate Democrats are contemplating taking a minimum wage bill to the Senate floor in September 2002. Senate Finance Committee sources tell us that to soften the impact (economic and political) of the minimum wage increase on the small business community, committee chairman Max Baucus will seek to add to the minimum wage bill a package of small business tax cuts, such as an increase in allowable expensing of capital equipment. At the same time, Senate Democrats will insist on including revenue raising measures on the bill to offset the revenue cost of the tax cuts. An obvious and attractive revenue raising target, from the point of view of Senate Democrats, is the deferred compensation measure endorsed by Thomas, the chief Republican tax writer in the Congress.
If the Senate passes a minimum wage increase this fall, House Republicans could be under pressure to follow suit before leaving Washington for the election. Their decision presumably will depend on economic conditions and the national mood at the time. (A similar scenario led to an increase in the minimum wage several years ago.) Assuming House Republicans agree to an increase in the minimum wage, they will certainly want to include the package of small business tax cuts as well. Again, to offset the revenue cost of the cuts, the deferred compensation package is an obvious revenue raising target.
Possible Course of Action by Affected Companies
According to Senate Finance Committee sources, few companies so far have raised objections to congressional tax writers about the Thomas deferred compensation proposals. A continued absence of complaints can be expected to lead to the endorsement of the proposals by the Senate and, eventually, to enactment. However, the Senate appears to be open to constructive modifications of the Thomas proposals.
Several companies have expressed concerns to McDermott Will & Emery lawyers about the Thomas proposals and asked us how to go about seeking modifications in them. We believe that the best way for companies to seek changes in the legislation, at this point, would be to join together as an informal lobbying coalition. The coalition could try to reach a consensus on a lobbying approach and then implement that approach.
The Senate could well take up minimum wage legislation as soon as Congress returns from its upcoming August recess. Companies that want to be involved will have to act quickly in formulating and executing a lobbying strategy.
If you have an interest in getting involved in such a coalition, McDermott Will & Emery would be pleased to help. James Gould, head of our Tax Legislative Practice, was chief counsel and staff director for the Senate Finance Committee under Lloyd Bentsen and has more than a decade of experience in tax lobbying.
