Million-dollar compensation packages would get pricier for big corporations under a late insert to keep the $1.9 trillion coronavirus aid package in line with its deficit targets.

A provision that first appeared in the Senate’s version of the huge relief bill last week and then survived the floor amendment “vote-a-rama” would potentially double the number of the highest-paid executives whose compensation can’t be written off by their companies.

Current law bars public companies from deducting from their tax bills the cost of anything more than $1 million a year in compensation that goes to one of five employees – the chief executive officer, the chief financial officer or the three other highest-paid executives at the company.

The Senate-passed bill, expected to clear the House on Wednesday, would add five more highly paid officials to the list. That means the compensation of up to 10 executives at America’s largest companies couldn’t be written off if the provision becomes law as expected.

“It’s really the largest of the large companies that have multiple executives making over $1 million,” said Kelly Haab-Tallitsch, an attorney at SmithAmundsen LLC in St. Charles, Ill., who focuses on executive compensation.

The change doesn’t go into effect until 2027, when its impact would start to be felt, increasing revenue by $7.8 billion over the following five years, according to the Joint Committee on Taxation. Considering corporate income taxes are already projected to bring in $1.9 trillion during that timeframe, according to the Congressional Budget Office, the tighter executive pay deduction was a small price to pay to fit the relief package into the budget resolution’s constraints.

“This provision raised revenue to ensure we met our targets,” a Senate Democratic aide, speaking on the condition of anonymity, said in explaining the rationale.

Rep. Lloyd Doggett, D-Texas, a senior Ways and Means member who’s complained for years that mega corporations face too few constraints on pay packages, applauded the Senate move. He’d go even further with legislation that would bar deductions of compensation to any employee making more than $1 million at a public company, rather than just the top 10 executives.

Doggett said his bill, which would take effect right away, would bring in $27 billion over a decade.

Familiar turf for GOP

Garrett Watson, senior policy analyst at the Tax Foundation, doesn’t expect to hear much criticism from Republicans since their 2017 tax cuts established the current policy to help offset a little of the $1.5 trillion cost. That legislation, also enacted under reconciliation procedures, bumped from four to five the number of million-dollar compensated executives whose pay couldn’t be written off.

There were two other big changes in the 2017 law. Prior to the GOP bill, a company could write off $1 million per employee, plus the amount a top-paid employee earned through incentives based on the company’s performance. If a company’s profits went up a pre-set percentage, that executive would get a bonus. The bonus plan had to be established early in the year before performance results could be known. The 2017 bill got rid of this exclusion, setting a flat $1 million cap on write-offs for the pay of the top five executives.

Furthermore, the 2017 law established a “once a covered employee, always a covered employee” feature, Haab-Tallitsch said. That provision barred a company from writing off the pay of any executive who had ever been paid more than $1 million and made the highest-paid list. So the list was cumulative. Before 2017, each year stood alone. If an executive fell off the list, perhaps due to retirement, the company could again write off any pay above $1 million.

That change aimed to thwart the creative ways companies had come up with to structure executive pay. Public companies would defer CEO pay and other benefits into retirement to minimize what the CEO paid in taxes while at the helm of the company. Instead, the pay would be deferred into retirement years when the former CEO was no longer earning a salary.

By adding the cumulative feature in 2017, Congress barred companies from writing off the multimillion-dollar deferred compensation deals they’d structured for their top execs.

“It’s all an attempt to find a way to minimize the creative avoidance” of taxes, Watson said.

The Republican tightening and expansion of the law in 2017 was estimated to raise $9.2 billion over 10 years. Senate Finance ranking member Michael D. Crapo, R-Idaho, declined comment. House Ways and Means ranking member Kevin Brady, R-Texas, did not immediately respond to a request for comment on the newly expanded limit in the Democrats’ relief bill.

Once covered, always covered

The new bill departs from the 2017 law in one important regard, Haab-Tallitsch said. While the new bill expands the “covered employees” from five to 10, positions six through 10 are treated differently, she said.

The Senate bill keeps the “once a covered employee, always a covered employee” feature of existing law, but does not extend it to the five executives added to the mix, Haab Tallitsch said. So those who pop onto positions six through 10 for one year, won’t be subject to this law in years they don’t make the list.

“You can have somebody who has something unusual, like a large sign-on bonus” become a “covered employee” but just for one year, Haab-Tallitsch said.

Congress first moved to curtail the deductibility of the highest-paid executives in a 1993 reconciliation bill. That law was little changed until 2017, according to research from The Tax Adviser, a publication of the American Institute of Certified Public Accountants. The initial law covered the top five executives; a 2007 revision took out the CFO reducing the number to four. The 2017 law added the CFO back into the mix while also removing the deferred compensation and performance bonus exemptions.

Gregory J. Ochalek, an executive pay specialist at CBIZ Inc., a Cleveland-based financial services and business consulting firm, said the new changes would primarily hit firms like his.

Manufacturing businesses, which have a just a few executives at the top of a bottom-heavy organization chart, aren’t likely to take much of a hit. Rather it will be companies with “a flat pyramid structure” like professional services firms that will be impacted, he said.

Ochalek imagines his firm, which “is not huge” but has revenues approaching $1 billion, has enough $1 million earners to be impacted.

Fortunately for businesses like Ochalek’s, the change doesn’t take effect for years. He doesn’t expect much pushback on it, though that would be different if Doggett’s bill got traction, for instance. In that case an “army of lobbyists” would likely be getting involved, Ochalek said.