CEO Accountability and Responsibility Act

Bill Number

H.R. 5019

Origin Chamber

House

Congress

119th Congress, Session 1

Policy Area

Taxation

Status

Introduced

Latest Action

2025-08-22: Referred to the Committee on Ways and Means, and in addition to the Committee on Oversight and Government Reform, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned.

Last Updated

2025-11-08T09:06:07Z

AI-Generated Summary

Purpose

The "CEO Accountability and Responsibility Act" (H.R. 5019) aims to promote fairer compensation practices in publicly traded corporations by linking their federal income tax rates to the ratio between the highest-paid employee's (typically the CEO's) compensation and the median compensation of all U.S. employees. It also seeks to influence federal contracting by favoring companies with lower pay ratios, encouraging reduced income inequality within corporations.

Key Provisions

• Tax Rate Adjustment for Publicly Traded Corporations:
• Applies to corporations defined under existing tax law (Internal Revenue Code §162(m)(2)) as publicly traded.
• Calculates a "compensation ratio" using:
• Numerator: Total compensation (as reported to the Securities and Exchange Commission) of the CEO or highest-paid employee for the prior calendar year.
• Denominator: Median wages (as defined under Social Security law) of all U.S. employees for the same period.
• Increases the corporate income tax rate (starting from the current 21% flat rate) by the following amounts based on the ratio:
• More than 100:1 but ≤150:1: +0.5 percentage points.
• More than 150:1 but ≤200:1: +1 percentage point.
• More than 200:1 but ≤250:1: +1.5 percentage points.
• More than 250:1 but ≤300:1: +2 percentage points.
• More than 300:1 but ≤400:1: +2.5 percentage points.
• More than 400:1: +3 percentage points.
• Adjusts related tax brackets and thresholds proportionally.
• Special Penalty Rule: If U.S. full-time employees (measured on a full-time equivalent basis, e.g., averaging 35+ hours/week) decrease by more than 10% from the prior year, and contracted or foreign employees increase, the tax rate adjustment is increased by 50%. New businesses start with zero baseline employees.
• Treats related companies (e.g., parent-subsidiary groups) as a single entity for ratio calculations.
• Requires corporations to report compensation data to the IRS as needed, with the IRS issuing regulations for implementation.

• Federal Contracting Preference:
• Amends U.S. procurement law (Chapter 47 of Title 41) to require executive agencies to favor bids from entities with a compensation ratio below 50:1 in the prior calendar year when evaluating contracts for goods or services.
• Uses the same ratio definition as the tax provision, but based on the year before the contract.

• Effective Date: Tax changes apply to taxable years beginning after enactment; procurement preference takes effect immediately upon enactment.

Significant Changes to Existing Law

• Internal Revenue Code (IRC §11): Introduces a new subsection (e) that modifies the flat 21% corporate tax rate by adding graduated surtaxes tied to pay ratios, a novel penalty mechanism not previously in the code. This builds on existing rules for executive compensation deductibility (IRC §162(m)) but extends penalties to the overall tax rate.
• Procurement Law (41 U.S.C. Chapter 47): Adds a new section (4715) creating a pay-ratio-based preference in federal bidding, shifting from purely cost- or performance-based evaluations to include equity considerations. This is the first such statutory preference explicitly linked to internal pay structures.

Potential Impacts

• On Government Agencies: The IRS will need to enforce new reporting and calculation rules, potentially increasing administrative workload and requiring new guidance. Federal procurement agencies (e.g., Department of Defense, General Services Administration) must incorporate pay-ratio checks into bidding processes, which could slow evaluations but promote equitable contractors.
• On Citizens and Corporations: Publicly traded companies with high pay gaps may face higher taxes (up to 24% effective rate), incentivizing pay adjustments, reduced executive bonuses, or workforce expansions in the U.S. Employees could benefit from narrower pay disparities or job protections against offshoring. Taxpayers may see increased federal revenue from surtaxes, potentially funding public programs.
• On International Relations: Minimal direct impact, though the rules discourage shifting jobs abroad (via the penalty for foreign employee increases), which could affect multinational corporations' operations and U.S. trade dynamics indirectly.

Main Stakeholders Affected

• Publicly Traded Corporations: Primary targets, especially large firms with high CEO pay; must monitor and report ratios, potentially altering compensation strategies.
• Corporate Executives and Employees: CEOs and top earners may see pay scrutiny; rank-and-file U.S. workers could gain from fairer median wages or job stability.
• Federal Government: IRS for tax enforcement; executive agencies for procurement preferences; Congress for oversight.
• Investors and Shareholders: Affected by potential tax costs or bidding advantages/disadvantages for portfolio companies.
• Taxpayers and Advocacy Groups: Broader public benefits from revenue gains; groups focused on income inequality (e.g., labor unions) may support it, while business lobbies may oppose.

Notable Legal, Constitutional, or Political Implications

• Legal: Introduces complex calculations (e.g., full-time equivalents, median wages) that could lead to disputes over IRS interpretations or SEC reporting accuracy. The procurement preference may face challenges under federal bidding laws if seen as arbitrary.
• Constitutional: Potential equal protection concerns under the 14th Amendment if the pay-ratio surtax is viewed as discriminatory against certain industries or company sizes; due process issues could arise from retroactive ratio use (prior-year data). No ex post facto violation since it's forward-looking.
• Political: Addresses income inequality by penalizing executive excess, aligning with progressive goals, but could be criticized as government overreach into private pay decisions. May spark debates on corporate taxation post-2017 Tax Cuts and Jobs Act, influencing future reform efforts.

This summary was generated by AI and may contain inaccuracies. Refer to the official source document for the authoritative text.

Sponsor

Rep. DeSaulnier, Mark [D-CA-10]

Cosponsors (2)

Del. Norton, Eleanor Holmes [D-DC-At Large], Rep. Goldman, Daniel S. [D-NY-10]

Recent Actions

• 2025-08-22: Referred to the Committee on Ways and Means, and in addition to the Committee on Oversight and Government Reform, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned.
• 2025-08-22: Referred to the Committee on Ways and Means, and in addition to the Committee on Oversight and Government Reform, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned.
• 2025-08-22: Introduced in House
• 2025-08-22: Introduced in House

Bill Versions

• CEO Accountability and Responsibility Act — issued 2025-08-22 — PDF (9 pages)