What This Bill Does
This bill changes how much federal income tax publicly traded corporations (companies whose stock trades on public exchanges) must pay. The tax rate increases or decreases based on how much the highest paid employee makes compared to what the typical employee makes. The bill also gives preference to companies with smaller pay gaps when they bid for government contracts.
Who It Affects
Publicly traded corporations and their employees. Executive agencies (federal government departments that buy goods or services) that award contracts.
Key Provisions
• Publicly traded corporations pay higher tax rates if their CEO or highest paid employee makes significantly more than the median employee, with increases ranging from 0.5 to 3 percentage points depending on the pay ratio (Sec. 2(e)(2))
• If a company reduces its U.S. workforce by more than 10 percent while increasing contracted or foreign employees, the tax rate penalty increases by 50 percent (Sec. 2(e)(4)(A))
• When evaluating bids for government contracts, executive agencies must favor companies that had a pay ratio below 50-to-1 in the previous calendar year (Sec. 3)
• Companies must report compensation information to the Secretary of the Treasury as required (Sec. 2(e)(6))
What Changes
If this bill becomes law, publicly traded corporations will owe more federal income taxes if their pay gap between top executives and typical employees grows larger. Companies bidding for government work will have a competitive advantage if they keep executive pay closer to worker pay.
Important Definitions
• Compensation ratio: The CEO or highest paid employee's total compensation divided by the median compensation of all U.S. employees, based on the calendar year before the tax year
• Compensation for regular employees: Wages as defined in federal payroll tax law
• Compensation for CEO and highest paid employee: Total compensation reported to the Securities and Exchange Commission (the federal agency that regulates stock markets) in official SEC documents
• Full-time employee: An employee working at least 35 hours per week on average or a salaried employee paid for full-time work
• Contracted employee: An individual hired under a written contract that specifies job length, pay and bonuses, and benefits
• Foreign full-time employee: A full-time employee working outside the United States
Effective Date
The bill applies to tax years beginning after the date Congress passes it (Sec. 2(b)).
I
118TH CONGRESS
1ST SESSION H. R. 1284
To amend the Internal Revenue Code of 1986 to adjust the rate of income
tax of a publicly traded corporation based on the ratio of compensation
of the corporation’s highest paid employee to the median compensation
of all the corporation’s employees, and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
MARCH 1, 2023
Mr. DESAULNIER introduced the following bill; which was referred to the
Committee on Ways and Means, and in addition to the Committee on
Oversight and Accountability, for a period to be subsequently determined
by the Speaker, in each case for consideration of such provisions as fall
within the jurisdiction of the committee concerned
A BILL
To amend the Internal Revenue Code of 1986 to adjust
the rate of income tax of a publicly traded corporation
based on the ratio of compensation of the corporation’s
highest paid employee to the median compensation of
all the corporation’s employees, and for other purposes.
Be it enacted by the Senate and House of Representa-
1
tives of the United States of America in Congress assembled,
2
SECTION 1. SHORT TITLE.
3
This Act may be cited as the ‘‘CEO Accountability
4
and Responsibility Act’’.
5
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SEC. 2. INCOME TAX RATE OF PUBLICLY TRADED COR-
1
PORATIONS
BASED
ON
COMPENSATION
2
RATIO.
3
(a) IN GENERAL.—Section 11 of the Internal Rev-
4
enue Code of 1986 is amended by adding at the end the
5
following:
6
‘‘(e) TAX RATE OF PUBLICLY TRADED CORPORA-
7
TIONS BASED ON COMPENSATION RATIO.—
8
‘‘(1) IN GENERAL.—In the case of a publicly
9
traded
corporation
(as
defined
in
section
10
162(m)(2)), in the amount of tax under subsection
11
(b) shall be determined—
12
‘‘(A) by adjusting the highest rate of tax
13
applicable to the taxpayer by the percentage
14
point adjustment specified in paragraph (2),
15
and
16
‘‘(B) by making proper adjustments to—
17
‘‘(i) the dollar amount in clause (ii) of
18
the second sentence of paragraph (1), and
19
‘‘(ii) the dollar amount in clause (ii)
20
of the third sentence of paragraph (1).
21
‘‘(2) ADJUSTMENT
OF
TAX
RATE.—For pur-
22
poses of paragraph (1), the percentage points speci-
23
fied in this paragraph shall be determined as follows:
24
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‘‘If the compensation ratio is:
The percentage point
adjustment is:
More than 100 but not more than 150 ........
+0.5 percentage points
More than 150 but not more than 200 ........
+1 percentage points
More than 200 but not more than 250 ........
+1.5 percentage points
More than 250 but not more than 300 ........
+2 percentage points
More than 300 but not more than 400 ........
+2.5 percentage points
More than 400 ..............................................
+3 percentage points.
‘‘(3) DEFINITIONS.—For purposes of this sub-
1
section—
2
‘‘(A) COMPENSATION
RATIO.—The term
3
‘compensation ratio’ means, with respect to any
4
taxable year, a ratio—
5
‘‘(i) the numerator of which is the
6
amount equal to the greater of the com-
7
pensation of the chief executive officer or
8
the highest paid employee of the taxpayer
9
for the calendar year preceding the begin-
10
ning of the taxable year, and
11
‘‘(ii) the denominator of which is the
12
amount equal to the median compensation
13
of all employees employed by the taxpayer
14
in the United States for the calendar year
15
preceding the beginning of the taxable
16
year.
17
‘‘(B) COMPENSATION.—
18
‘‘(i) EMPLOYEES.—In the case of em-
19
ployees of the taxpayer other than the
20
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•HR 1284 IH
chief executive officer or the highest paid
1
employee, the term ‘compensation’ means
2
wages (as defined in section 3121(a)) paid
3
by the taxpayer during a calendar year.
4
‘‘(ii) CEO AND
HIGHEST
PAID
EM-
5
PLOYEE.—In the case of the chief execu-
6
tive officer and the highest paid employee
7
of the taxpayer, the term ‘compensation’
8
means total compensation for the calendar
9
year, as reported in the Summary Com-
10
pensation Table reported to the Securities
11
and Exchange Commission pursuant to
12
Item 402 of Regulation S–K of the Securi-
13
ties and Exchange Commission.
14
‘‘(4) SPECIAL RULE IF CONTRACTED OR FOR-
15
EIGN EMPLOYEE RATIO INCREASES.—
16
‘‘(A) IN GENERAL.—If—
17
‘‘(i) the total number of full-time em-
18
ployees, determined on an annual full-time
19
equivalent basis, employed by the taxpayer
20
in the United States for a taxable year is
21
reduced by more than 10 percent, as com-
22
pared to the total number of full-time em-
23
ployees, determined on an annual full-time
24
equivalent basis, employed by the taxpayer
25
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•HR 1284 IH
in the United States for the preceding tax-
1
able year, and
2
‘‘(ii) the total number of contracted
3
employees or foreign full-time employees,
4
determined on an annual full-time equiva-
5
lent basis, of the taxpayer for that taxable
6
year has increased, as compared with the
7
total number of contracted employees or
8
foreign full-time employees, determined on
9
an annual full-time equivalent basis, of the
10
taxpayer for the preceding taxable year,
11
then the applicable tax rate determined under
12
paragraph (2) shall be increased by 50 percent.
13
For taxpayers who first commence doing busi-
14
ness during the taxable year, the number of
15
full-time employees, contracted employees, and
16
foreign full-time employees for the immediately
17
preceding prior taxable year shall be zero.
18
‘‘(B) DEFINITIONS.—For purposes of this
19
paragraph—
20
‘‘(i) ANNUAL
FULL-TIME
EQUIVA-
21
LENT.—The term ‘annual full-time equiva-
22
lent’ means—
23
‘‘(I) in the case of a full-time em-
24
ployee paid hourly qualified wages, the
25
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•HR 1284 IH
total number of hours worked for the
1
taxpayer by the employee, not to ex-
2
ceed 2,000 hours per employee, di-
3
vided by 2,000, and
4
‘‘(II) in the case of a salaried
5
full-time employee, the total number
6
of weeks worked for the taxpayer by
7
the employee divided by 52.
8
‘‘(ii) CONTRACTED
FULL-TIME
EM-
9
PLOYEE.—The term ‘contracted full-time
10
employee’ means an individual engaged by
11
the taxpayer to provide a specific set of
12
services established pursuant to the terms
13
and conditions of a written employment
14
contract that delineates the length of em-
15
ployment, the salary and bonuses (if any)
16
to be paid, and the benefits that accrue to
17
that individual.
18
‘‘(iii)
FOREIGN
FULL-TIME
EM-
19
PLOYEE.—The term ‘foreign full-time em-
20
ployee’ means a full-time employee of the
21
taxpayer that is employed at a location
22
other than the United States.
23
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•HR 1284 IH
‘‘(iv) FULL-TIME
EMPLOYEE.—The
1
term ‘full-time employee’ means an em-
2
ployee of the taxpayer that either—
3
‘‘(I) is paid compensation by the
4
taxpayer for services of not less than
5
an average of 35 hours per week, or
6
‘‘(II) is a salaried employee of
7
the taxpayer and is paid compensation
8
during the taxable year for full-time
9
employment.
10
‘‘(5) CONTROLLED GROUPS.—For purposes of
11
this subsection, all persons treated as a single em-
12
ployer under subsection (b), (c), (m) or (o) of sec-
13
tion 414 shall be treated as one person.
14
‘‘(6) REPORTS.—The taxpayer shall furnish
15
such reports to the Secretary with respect to com-
16
pensation and such other matters as the Secretary
17
may require. The reports required by this subsection
18
shall be filed at such time and in such manner as
19
may be required by the Secretary.
20
‘‘(7) REGULATIONS.—The Secretary shall pre-
21
scribe such regulations and other guidance as may
22
be necessary or appropriate to carry out this sub-
23
section, including any guidelines regarding the deter-
24
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•HR 1284 IH
mination of wages, average compensation, and com-
1
pensation ratio.’’.
2
(b) EFFECTIVE DATE.—The amendment made by
3
subsection (a) shall apply to taxable years beginning after
4
the date of the enactment of this Act.
5
SEC. 3. CONTRACTING PREFERENCE FOR ENTITIES WITH
6
CERTAIN PAY RATIOS.
7
(a) AMENDMENT.—Chapter 47 of title 41, United
8
States Code, is amended by inserting after section 4714
9
the following new section:
10
‘‘§ 4715. Preference for entities with certain pay ra-
11
tios
12
‘‘(a) PREFERENCE.—In the evaluation of bids or pro-
13
posals for a contract for the procurement of goods or serv-
14
ices, the head of an executive agency shall provide a pref-
15
erence to an entity that for the previous calendar year has
16
a compensation ratio of less than 50-to-1.
17
‘‘(b) COMPENSATION RATIO DEFINED.—In this sec-
18
tion, the term ‘compensation ratio’ has the meaning given
19
that term in section 11(e)(3)(A) of the Internal Revenue
20
Code of 1986, except the ratio determined for the calendar
21
year preceding the calendar year of the contract to which
22
this section applies.’’.
23
(b) CLERICAL AMENDMENT.—The table of sections
24
at the beginning of such chapter is amended by inserting
25
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•HR 1284 IH
after the item relating to section 4714 the following new
1
item:
2
‘‘4715. Preference for entities with certain pay ratios.’’.
Æ
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