Curtailing Executive Overcompensation (CEO) Act
- Sponsor
- Sen. Whitehouse, Sheldon [D-RI]
- Committees
- Finance Committee (primary)
- Last action
- Jul 16, 2026
Bottom line
The bill aims to discourage extreme executive compensation by imposing a new excise tax on large companies where the highest-paid employee earns significantly more than the median worker, with the goal of promoting more equitable wage distribution.
What it actually does
This bill amends the Internal Revenue Code of 1986 to establish a new excise tax on certain large employers that exhibit an "excessive pay disparity" between their highest-compensated employee and their median worker. The tax is levied at a rate of 1% on a calculated base related to the pay disparity, capped at 1% of the employer's gross receipts.
Proponents argue
Supporters argue that this tax will incentivize companies to reduce excessive executive compensation, narrow the pay gap between CEOs and average workers, and potentially free up resources for worker wages or investments. They believe it addresses economic inequality and promotes fairer corporate practices by directly penalizing companies with extreme pay disparities.
Opponents contend
Opponents might argue that such a tax interferes with free market principles, could lead to unintended consequences like companies reclassifying employees or contractors to avoid the tax, or might simply be passed on to consumers or shareholders without actually benefiting workers. They may also contend it represents an unwarranted government overreach into private sector compensation decisions.
The bill is concise, allowing for a quick read, but understanding its full implications requires careful attention to the specific tax code definitions and calculations.
Section 1
Short Title: 'Curtailing Executive Overcompensation (CEO) Act'
This section establishes the official short title of the bill as the 'Curtailing Executive Overcompensation (CEO) Act.' This title provides a concise and recognizable name for the legislation, facilitating its reference and discussion in legislative and public discourse.
Supporters argue
Supporters argue that a clear and descriptive short title helps communicate the bill's purpose to the public and facilitates legislative discussion, making the intent of the legislation immediately understandable.
Critics contend
No specific opposition is typically raised against short titles, as they are standard legislative practice and serve a functional purpose.
Tradeoffs
None.
Section 2(a), adding Chapter 50B, Section 5000E(a)
Imposition of New Excise Tax on Excessive Pay Disparity
This provision establishes a new excise tax on 'applicable employers' for any calendar year where their highest-compensated employee's average qualified wages over a five-year period exceed 5000% (a 50:1 ratio) of the median wages paid to all 'applicable employees.' The tax rate is 1% of a calculated base, or 1% of the employer's gross receipts, whichever amount is lesser.
Section 2(a), adding Section 5000E(b)
Definition of 'Applicable Employer' Subject to the Tax
An employer is classified as an 'applicable employer' if it has at least $100,000,000 in gross receipts for each of the three preceding calendar years AND paid wages exceeding $10,000,000 for each of those three years. These financial thresholds are subject to inflation adjustments after 2027. The bill also specifies that aggregation rules (Section 52) and predecessor rules (Section 448(c)(3)(D)) apply, meaning related entities are treated as a single employer.
Section 2(a), adding Section 5000E(c)
Calculation of Pay Disparity Factor and Ratio
This provision defines the core metrics for the tax: the 'pay disparity factor' and 'pay disparity ratio.' The 'pay disparity factor' is the amount by which the 'pay disparity ratio' exceeds 50. The 'pay disparity ratio' is calculated as the ratio of the average 'qualified wages' of the highest-compensated employee over a five-calendar-year period to the median wages paid to all 'applicable employees' for the current calendar year. 'Qualified wages' include regular wages plus elective deferrals and certain other compensation, ensuring a comprehensive measure of total compensation.
Section 2(a), adding Section 5000E(c)(4)
Definition of 'Applicable Employee' for Median Wage Calculation
This provision defines an 'applicable employee' as any individual whose wages in connection with services performed for the applicable employer for the calendar year are equal to or more than $5,000. This $5,000 threshold is also subject to inflation adjustment after 2027, ensuring its relevance over time.
Section 2(a), adding Section 5000E(d) and (e)
Joint and Several Liability and Anti-Avoidance Regulatory Authority
This provision stipulates that if multiple taxpayers are treated as a single employer due to aggregation rules, they are jointly and severally liable for the excise tax. Additionally, it mandates the Secretary of the Treasury to issue regulations as necessary to prevent avoidance of the tax's purposes, specifically mentioning manipulation of the pay disparity factor through changes to workforce composition, such as using contractors rather than employees.
Section 2(b), amending Section 275(a)(6)
Excise Tax Not Deductible for Income Tax Purposes
This amendment to Section 275(a)(6) of the Internal Revenue Code specifies that the new excise tax imposed under Chapter 50B cannot be deducted when calculating federal income taxes. This means the tax is a direct, non-offsettable cost to the employer, making its financial impact more significant.
For self-employed individuals and owner-employees (as defined in section 401(c)(1)), 'qualified wages' includes their earned income (as defined in section 401(c)(2), without regard to any exclusion under section 911).
Section 5000E(c)(3)(B)(ii)
Why it matters:This is standard legislative practice for tax bills to ensure consistency and brevity by referencing existing code sections. However, it makes the full scope of what constitutes 'qualified wages' for certain business structures less immediately apparent to a casual reader.
Case for: Supporters would argue this ensures comprehensive and fair inclusion of all forms of compensation for individuals who are both owners and employees, preventing a loophole for certain business structures to avoid the tax by structuring executive pay as 'earned income' rather than 'wages.'
Case against: Critics might argue that the complexity of incorporating earned income definitions for self-employed individuals adds unnecessary administrative burden for businesses with such structures, and could lead to disputes over what constitutes 'earned income' in this specific context, increasing compliance costs.
Estimated impact: Ensures that compensation for owner-employees in certain business structures is properly accounted for in the highest-compensated employee calculation, preventing a potential avoidance strategy and broadening the tax's applicability.
The monetary thresholds for 'applicable employer' ($100,000,000 gross receipts, $10,000,000 total wages) and 'applicable employee' ($5,000 wages) are all subject to annual cost-of-living adjustments after 2027. These adjustments are determined under Section 1(f)(3) of the Internal Revenue Code, using calendar year 2026 as the base year, and are rounded to the nearest $100,000 or $100, respectively.
Section 5000E(b)(4) and Section 5000E(c)(4)(B)
Why it matters:It is standard legislative practice to include inflation adjustments in monetary thresholds to maintain their real value over time without requiring constant legislative updates. However, the specific mechanics are often detailed in technical subsections, making them less prominent.
Case for: Proponents would argue that indexing these thresholds to inflation is essential to ensure the tax remains relevant and continues to target the intended scale of businesses and employees over time, preventing the thresholds from becoming outdated due to economic growth or inflation.
Case against: Opponents might argue that complex indexing mechanisms add to the administrative burden for businesses and the IRS, and that the specific index chosen might not perfectly reflect the economic realities relevant to executive compensation or the overall economy, potentially leading to unintended shifts in who is covered.
Estimated impact: Ensures the applicability of the tax and the definition of 'applicable employees' adapt to economic changes, maintaining the policy's intended scope and preventing 'bracket creep' for businesses and employees near the thresholds.