Fair Minimum Wage Act of 2007

FAIR MINIMUM WAGE ACT OF 2007 -- (Senate - January 24, 2007)

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Mr. CRAPO. Madam President, I will take 5 minutes or less to speak on a matter of importance, in terms of the process we are following as we consider the Small Business and Work Opportunity Act.

The concern I raise is regarding compensation-related tax increases that came out of the Senate Committee on Finance as part of this package.

The Small Business and Work Opportunity Act includes $8.3 billion worth of business tax reductions that are paid for with offsetting tax increases. Two of these tax increases relating to the tax treatment of compensation are brandnew proposals that have never been examined by either the Committee on Finance or the full Senate. In fact, the legislative language was not even available when H.R. 2 was brought to the Senate.

The concern I have about the process is this: Almost half of the business tax cuts in the package we are considering are extensions of current tax law provisions that Congress has previously passed with broad bipartisan support without offsetting tax increases.

I understand the desire to offset the cost of new tax policies, but I am concerned about increasing taxes on individuals and employers to offset extensions of current policy. Mandatory spending programs, which are the real source of budgetary pressure, are automatically extended every year. These automatic extensions are not paid for because they represent extensions of current law. The same standard should apply to current tax policy.

We will engage in a debate over the pay-as-you-go budget requirements when a pay-go proposal is submitted to the Senate. Until that time, I urge my colleagues, we should not raise taxes to offset current tax law, particularly if the tax increase proposals have never been vetted. Making major changes to the tax law without full examination of the policy proposals will lead to unintended consequences and create real burdens on many of the employers that this bill seeks to help.

I will point out a few of the concerns these new proposals do raise that, as I said, were not raised in the Committee on Finance as we did not have time to review them carefully.

One of the proposals, the new limits on deferred compensation, limits the amount of compensation an employee can save in a nonqualified deferred compensation plan or an NQDC plan. I know we are getting into acronyms and some of the complications of the code, but these things have real consequences in the business of our country. I have several significant concerns with this proposal which were not addressed during the Committee on Finance consideration of the bill.

First, the proposal does not target executives. NQDC plans benefit a wide range of workers, including nonmanagerial employees. The Committee on Finance proposal affects all employees in the plan, not just executives. As a result, the proposal would limit the amount that mid-level workers can set aside for retirement, attacking one of the objectives that we in America need to be paying strong attention to, the ability of Americans to begin saving assets for retirement.

Second, the proposal does not target multimillion dollar salaries--again, one of the justifications for the proposal. It is said that this is the million-dollar salary provision. Yet the cap on annual deferrals is set at the lesser of $1 million or a 5-year average of past compensation. This could have negative consequences on employees at a much lower salary level.

For example, consider a nonmanagerial employee who worked at a manufacturing plant for 13 years at an average salary of $60,000 over the past 5 years. In the process of downsizing, this employee may be offered a severance package that includes 1 year of health benefits plus 2 years of severance pay for every year on the job. A severance package of this size would add up to $141,000 paid over a number of years. The present value of this package--in other words, the value stream of the payments in today's dollars--is $125,000. Since the employee is bound by a $60,000 cap on deferrals, this severance would be taxed and hit with a 20-percent tax penalty. This is hardly the result we would want.

This proposal does nothing to create parity in compensation between executives and rank-and-file workers and, in fact, does not limit the amount that executives can be paid as, again, is the stated intention behind the inclusion of this proposal in the bill. It simply requires them to pay taxes on their compensation sooner rather than later. Yet it has that unintended consequence that we often speak so much about in the Senate of reaching much more broadly than the payment of high salaries to the high-paid executives and hitting the mid-level managers in the businesses around our country who will pay tax penalties because we did not take the time to pay close attention to the kinds of provisions contained in the bill.

All of us have been contacted by those in the country who are concerned about this, organizations such as the American Bankers Association, the American Benefits Council, the American Council of Life Insurers, the Association for Advanced Life Underwriting, the ERISA Industry Committee, FEI's Committee on Benefit Finance, FEI's Committee on Taxation, the HR Policy Association, the National Association of Manufacturers, the Securities Industry and Financial Markets Association, the Financial Services Roundtable, and, of course, the U.S. Chamber of Commerce. These groups which represent businesses of all sizes around the country, which seek to provide benefits and support for their employees, are asking us to pay attention to the process by which we put proposals of this kind into the Tax Code without the kind of due deliberation they deserve.

Hopefully, during the process of the consideration of this bill, we will have an opportunity to correct these unintended consequences and make sure that the midlevel managers and others who are involved in NQDC plans--nonqualified deferred compensation plans--do not face these tax penalties we never intended them to face.

I thank the Chair.

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