Congress hopes to put tax bite on executive perks
Have you always wanted to enjoy the same perquisites - free parking, low-interest loans, a box seat at the Super Bowl - as the top executives at your company?
Soon your employer may be faced with the choice of allowing access to such perks on a nondiscriminatory basis to employees of all levels or be forced to count the benefits as income subject to federal tax.
The nondiscrimination provision is one part of a bill dealing with taxation on fringe benefits. The measure cleared a House Ways and Means subcommittee Sept. 29 and is scheduled to come before the full panel this week.
''A lot of executive perks will be affected'' by the fringe-benefit measure, a Ways and Means staff member predicts. The bill is given a good chance of clearing both the House tax panel and the Senate Finance Committee.
''It is hard to be against . . . fairness,'' the Ways and Means aide says.
Business groups agree the measure could cause significant changes in the way perks are doled out. Among those most likely to be affected are free parking, executive dining rooms, interest-free loans, and box seats at sporting events, notes David Franasiak, tax policy manager at the US Chamber of Commerce.
Companies could still give perks to top managers only if they could prove a business purpose for the discrimination. ''This will mean companies will have to document the business need for perks to a greater extent,'' says Alan Johnson, a senior consultant at Sibson & Co., a compensation consulting firm. ''The super-duper lunchroom is going to need a log or record that business is being discussed.''
The fringe-benefit measure is one of a package of tax bills that Ways and Means chairman Dan Rostenkowski (D) of Illinois plans to lash together and bring to the House floor later this month. The Senate Finance Committee is also working on various relatively minor revenue-raising measures.
The bills in both tax committees are designed to raise roughly $12 billion. In mid-September, congressional leaders from both parties agreed to try to raise the $12 billion when it became clear that Congress would not pass the $73 billion in new taxes called for under the 1984 congressional budget.
President Reagan is opposed to any new revenue-raising measures. But the administration has indicated it might go along with a bill that would make technical corrections and incidentally picks up relatively small amounts of revenue. A Treasury spokesman says the administration will decide any revenue package after it emerges from Congress.
The fringe-benefit bill is not expected to have any significant short-term effect on federal revenue, Ways and Means sources say. One reason is that the bill would exempt from tax a wide range of benefits - such as employee discounts on company products or services - that previously did not have statutory tax-exempt status. Benefits that were already in the statutory tax-exempt category include employer-paid premiums for life, health, and disability insurance, employer-provided child care, and prepaid legal services.
Critics have long argued that allowing companies to provide compensation in the form of tax-free benefits distorts the tax system. ''When compensation is paid in fringe benefits, but the value of the fringe benefits is not included in income, employees with equal economic income are taxed unequally, depending on the relative amounts of cash and in-kind compensation each receives,'' John E. Chapoton, assistant Treasury secretary for tax policy, told Congress earlier this year.
While the administration had argued for taxing nonstatutory fringe benefits, it dropped its support last summer, saying it did not want to irritate voters.
Under the Ways and Means bill, employee discounts on corporate goods or services would be tax free if they were distributed on a nondiscriminatory basis and met other criteria. For example, goods could not be sold to employees on a tax-free basis for less than the employer's cost. The discount on services would be limited to 20 percent.
Airlines and other businesses that offer reciprocal discounts to employees of other companies in the same industry could continue doing so. But the discounts would be subject to a line of business restriction. So conglomerates would be prohibited from giving workers discounts from the company's subsidiaries.
Although the fringe-benefit measure would not raise a large amount of revenue in the short term, it would give the Internal Revenue Service ground rules for monitoring the area, a Ways and Means aide says. Congress had placed a moratorium, which expires Dec. 31, on IRS rulemaking in the fringe-benefit area.
But if the fringe measure passes, ''the Treasury is going to try to tax as many of these things as they figure they can,'' says Mr. Johnson at Sibson. How tax breaks for employee fringe benefits trim federal revenues
Revenue loss to Fringe benefit federal government in 1984 (billions of dollars) Pensions $56.56 Health care 21.30 Life insurance 2.25 Employee meals/lodging .725 Accident/disability insurance .120 Child care .025 Legal services .025 Educational assistance .020 Other 2.25m Total $83.27 Source: Joint Committee on Taxation