WASHINGTON–The life insurance industry late Friday edged closer to its goal of having deferred compensation provisions stripped from pending minimum wage legislation.
The National Association of Insurance and Financial Advisers lauded the decision of the Democratic lawmakers in a statement late Friday, which removed tax provisions that would have narrowing non-qualified deferred compensation packages.
“We know there is a continuing interest in Congress in developing sound public policy relating to deferred compensation, so this is not likely the end of the story,” Michael Kerley, senior vice president, federal government relations for NAIFA, cautioned. “But for now, it’s the best outcome possible.”
Marc R. Cadin, vice president of legislative affairs for the Association for Advanced Life Underwriting, noted his group had “strongly opposed this provision because of its negative impact on this marketplace, but also because of its broader impact on savings.”
Despite the decision of the chairmen of the Senate Finance Committee and the House Ways and Means Committee to strip the provisions from the bill that would raise the minimum wage, final action on the legislation is perhaps weeks away.
That’s because the provisions raising the minimum wage in 3 steps and the stripped-down package of small-business tax cuts and offsetting revenue raisers is contained in legislation authorizing added funds for the war in Iraq. The President is expected to veto that legislation when it reaches his desk, probably in early May. That would extend the delay in acting on the combined Iraq supplement-minimum wage increase for at least several weeks.
The bill is titled H.R. 1591, U.S. Troops Readiness, Veterans’ Health, and Iraq Accountability Act of 2007.
Sen. Max Baucus, D-Mont., chairman of the Finance panel, and Rep. Charles Rangel, D-N.Y., chairman of the Ways and Means panel, agreed on $4.8 billion in tax cuts for small businesses over 10 years.
The tax cuts would mostly be offset by a series of new Internal Revenue Service enforcement steps and higher penalties for erroneous returns. About half of the tax relief would go to extend tax breaks for businesses hiring people on welfare and other difficult-to-employ workers.
The deferred compensation provisions, contained in a tax bill-minimum wage package passed by the Senate in February, would cap deferred compensation packages at $1 million annually.
Specifically, the provisions would:
Amend Internal Revenue Code section 409A to impose a dollar cap on the annual accrual of nonqualified deferred compensation that is either $1 million or the individual’s average annual compensation determined over 5 years, whichever is less. Failure to satisfy the cap would trigger ordinary income tax plus the 20% additional tax under section 409A.
Amend the section 162(m) (“million dollar deduction”) limits to eat any former employees and their beneficiaries as continuing to be covered by the 162(m) limits after termination of employment.
The substantive change in federal tax policy would affect executives at hundreds of corporations and would raise taxes on some of the nation’s wealthiest workers by an estimated $806 million over 10 years, according to estimates provided the panel by the congressional Joint Tax Committee.
Sen. Charles Grassley, R-Iowa, ranking minority member of the Senate Finance Committee, reacted to the Democratic deal with anger.
“This package is stripped of a lot of meaningful tax relief,” Sen. Grassley said. “Missing are many of the tax-abuse crackdowns from the Senate bill. Apparently the lobbyists’ crocodile tears over those crackdowns were effective.”