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Senate Panel Limits Pay Deferrals for Executives
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The plans typically function as high-end retirement accounts for corporate executives. In principle, they work a lot like Individual Retirement Accounts or 401(k) retirement plans, but involve far larger sums.
The plans allow the executives to put part of their income, sometimes several million dollars a year, into a special account without immediately paying taxes. The money earns interest, which isn't taxed right away, either. After retirement, the executive withdraws the money and pays taxes on it, but the earlier tax deferrals mean an account may have grown millions of dollars larger than an ordinary savings account would have.
The practice allows executives to "retire in the same type of lifestyle they were used to living," Varblow said.
The measure approved yesterday would limit the amount an executive could put in such a plan to $1 million a year or the amount of the executive's annual salary, whichever is less. Anyone who exceeded the allowable amount would be forced to pay taxes on all income deferred since Dec. 31, 2006, plus a 20-percent penalty.
Finance Committee Chairman Max Baucus (D-Mont.) said limiting the accounts is a declaration that "more Americans should be treated equally."
"For the vast, vast majority of families, there's a limit on deferred compensation that's not taxed of about $15,000" a year, Baucus said, referring to the sum ordinary people can put in a 401(k) plan. "I just think the general rule should apply to all Americans, even the very highly compensated executives." Limiting their annual deferral to $1 million "is not an unfair burden," he said.
The measure faces trouble in the House, where many Democrats oppose more tax breaks for business. House Majority Leader Steny H. Hoyer (D-Md.) yesterday said he was "disappointed" by the Finance Committee's action.
"The choice to tie a bill raising the minimum wage to tax breaks for businesses will cost taxpayers $8 billion and complicate and delay the passage of an increase," Hoyer said in a statement. "Eighty-nine percent of the American people support an increase in the federal minimum wage, and they should not have to spend $8 billion in order for Congress to do the right thing."
