A set of tax proposals issued today by Rep. Chris VanHollen (D-Md.), the ranking Democrat on the House Budget Committee, may lay the foundation for Democratic employee benefit-related legislation this year and beyond.

The proposals, described as an “action plan to grow the paychecks of all, not just the wealth of a few,” touch on profit sharing, retirement saving incentives and childcare benefits. “Surely we can change the tax code to incentivize corporations to give employees bigger paychecks and reward people who earn money through hard work,” according to VanHollen.

Although most of his proposals are not likely to find favor with House Republicans who hold a strong majority in that Chamber, some could ultimately gain traction as bargaining chips in a larger bipartisan tax reform effort. Specific benefit and compensation proposals in VanHollen’s list include the following:

  • Incentives for employee ownership and profit-sharing: VanHollen would restrict executive stock options to companies that “provide their employees with ownership and profit sharing plans meeting certain standards.” The standards were unspecified.  The proposal includes a carrot for corporations: The current $1 million cap on deductibility of executive compensation would be lifted for companies that create those employee ownership and profit-sharing opportunities.
  • CEO bonus carrot and stick: VanHollen today called attention to legislation he proposed last fall, the “CEO-Employee Paycheck Fairness Act.” That proposal set a $1 million cap on the currently unlimited deductibility of incentive-based executive compensation, unless the company’s compensation policy meets certain standards. Specifically, to avoid that cap companies would need to be giving all employees raises “that reflect increases in worker productivity and the cost of living.” Also companies that are downsizing would be ineligible for unlimited deductibility of incentive-based compensation.
  • Retirement savings tax credit: All employee wages would be eligible for a $1,000 tax credit ($2,000 for couples). The idea is to counterbalance lower tax rates available for investment income. Employees who park at least $500 of that $1,000 in a retirement plan or start a “myRA” would get an additional $250 tax credit.
  • Child and dependent care tax credit: VanHollen would increase the current $3,000 per child/$6,000 maximum for multiple children to $8,000/$16,000, while phasing out the credit for households with incomes of at least $200,000.

Other proposals contained in the package released Monday include tax incentives for companies offering apprenticeship programs, and to the second earner in a two-earner household.
Also see: Hatch presses small employers to offer 401(k)s

VanHollen said the federal tax revenue loss from the proposals would be offset by reducing lower tax rates for investment income and by imposing a tax on investment transactions, though no details were offered. The idea, he stated, is to “change the way our current tax code is rigged in favor of those who make money off of money, and against those who make money from work.”

The Obama administration is reportedly in favor of these proposals.

On the one hand, should any of these proposals ever be enacted, many employers may bristle at the prospect of having more federal strings attached to their compensation and benefits programs. At the same time, the more employees are able to net from their paychecks due to new tax incentives, the pressure on employers to increase their compensation could, in theory, be reduced.

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