It’s no secret that Joe Biden and the US Democratic Party have had an ambitious spending plan since taking over the White House and a majority in Congress. So far, this has mainly been realized through the passing of extensive COVID-19 relief plans. However, now that the worst of the pandemic is behind us, Democrats are returning to their original agenda and are attempting to pass a $2 trillion infrastructure plan.
Even for the U.S. government, $2 trillion is not a small amount of money. However, the Democratic Party has a lot of initiatives that require robust funding. This begs the question: how do they plan on paying for everything? Mainly by raising taxes (especially on the nation’s top executives and businesses).
Let’s take a look at how new Democratic legislature and the Biden Administration are reshaping taxes and how that affects executive compensation.
The New Democratic Led Government Have Already Started
There were quite a few noteworthy events that happened over the past two years on both a national and a global scale. Due to this, one thing that snuck under the radar is that the new Democratic-led US government has already raised taxes on the nation's top executives. When passing one of the COVID-19 relief plans, Democrats included a trio of tax hikes that will make it harder for executives and corporations to dodge their tax obligations.
In total, there were three corporate tax modifications that were quietly included in the COVID-19 legislation. The first was a measure that takes away deductions that corporations get for paying their executives more than $1 million. The second put forth tighter regulations on how multinational corporations can do their taxes. The final tax change was a section that targets how owners of unincorporated businesses account for their losses.
In particular, the first measure will likely cause corporations to rethink their executive compensation structure. If corporations get a diminished tax break for paying top employees specifically, there isn’t as strong of an incentive for awarding high value compensation plans.
Let’s take a look at a few ways that Democrats are planning to raise taxes on corporations and top executives even further.
What’s On The Agenda?
The Democratic Party has an aggressive spending plan that they are hoping to implement. In order to fund it, they are exploring quite a few options to raise money through tax related legislature. For the most part, all of these options involve hiking rates on large corporations and the nation's wealthiest citizens.
A few of the suggested tax hikes are what you might expect. Democrats have talked about raising the corporate tax rate (back to 39.6%) or increasing the tax on capital gains to match the top income tax rate for high earners.
Some of the newer methods for increasing taxes include a levy on billionaires, raising the estate tax, and imposing an excise tax on corporations where the CEO outearns the average workers by a to-be-determined ratio. In particular, this final tax hike could incentivize corporations to cut the amount that they pay their top executives substantially.