# Understanding the Tax Excessive CEO Pay Act of 2021

This bill creates a new tax penalty for large corporations where the CEO or highest-paid executive earns significantly more than their typical worker. Specifically, if a company's pay ratio—the CEO's compensation divided by the median worker's pay—exceeds 50 to 1, the company faces an increase in its corporate tax rate. The bigger the gap between executive and worker pay, the steeper the penalty.

Here's how the penalty works in practice: If a CEO earns 60 times what the median employee makes, the company's tax rate goes up by 0.5 percentage points. If the ratio reaches 150 to 1, the increase jumps to 1 percentage point. The penalties keep climbing as the gap widens, topping out at a 5 percentage point increase for companies where the CEO makes more than 500 times the median worker's salary. Since the current standard corporate tax rate is 21 percent, a company with a 500-to-1 pay ratio would face a 26 percent tax rate instead.

The bill applies to large public companies and private companies with average annual revenues of at least $100 million. Smaller private companies are exempt from these penalties. The law would take effect for tax years starting after December 31, 2021. Supporters argue this incentivizes companies to narrow extreme pay gaps by making excessive CEO compensation more expensive, while critics worry it could discourage business investment or lead companies to restructure their workforces to manipulate the pay ratio calculation.

Tax Excessive CEO Pay Act of 2021

Lee, Barbara

Tax Excessive CEO Pay Act of 2021 This bill increases the current 21% income tax rate of corporations whose ratio of compensation of their principal executive <e > officers or other highest compensated employees to median worker compensation is more than 50 to 1, in which case the increase is 0.5%. The pay ratio disparity extends from 100 to 1 to 500 to 1, in which case the increase is 5%. The bill exempts from such increase certain corporations based upon their average annual gross receipts.