New CEO Act Targets Large Firms with 1% Revenue Tax for Extreme Executive-to-Worker Pay Gaps

The Curtailing Executive Overcompensation (CEO) Act introduces a new excise tax specifically designed to penalize large companies where the boss's paycheck is vastly higher than the average worker's. Starting for tax years after the bill passes, any company that has pulled in at least $100 million in annual gross receipts and paid out $10 million in wages over the last three years is on the hook. The bill calculates a "pay disparity ratio" by comparing the highest-paid employee’s five-year average earnings to the median wage of all employees making at least $5,000. If that gap is wider than 50 to 1, the company triggers a tax that could climb as high as 1% of their total gross receipts for the year.

The Math of the Pay Gap

To figure out who owes what, the bill looks at the "pay disparity factor," which is essentially how much a company’s pay ratio exceeds 50. For example, if a CEO makes 100 times what the median worker makes, that disparity factor is 50 (100 minus 50). The tax is then calculated as 1% of the amount by which the CEO's pay exceeds 50 times the median worker's wage, but it is capped at 1% of the company's total gross receipts (Section 2). This means a massive tech firm or a national retail chain could face a tax bill in the millions if they don't bring those numbers closer together. To keep things fair over time, the $100 million revenue threshold and the $5,000 worker wage floor will be adjusted for inflation starting after 2027.

Closing the Loophole Shutters

The bill doesn't just set a rule and walk away; it includes specific measures to prevent companies from gaming the system. Under the "aggregation rule," related businesses are treated as a single employer, so a company can't simply spin off its low-wage workers into a separate subsidiary to make the main company's median wage look higher. Furthermore, the Treasury Secretary is granted the authority to write regulations that stop employers from manipulating workforce composition to dodge the tax. It is also important to note that this excise tax is non-deductible, meaning companies can't write off the penalty on their income taxes to soften the blow.

Real-World Friction and Bottom Lines

For the average person working at a giant corporation, this bill aims to create a financial incentive for the board of directors to either lower executive bonuses or raise worker pay to avoid the tax. However, the impact on shareholders could be significant; a 1% tax on gross receipts (not just profits) is a heavy lift that could eat into dividends or stock values. There is also a practical challenge in how companies might respond—some might look for ways to automate low-wage roles to push their median wage higher and escape the tax bracket. Because the bill leaves a lot of the "anti-gaming" specifics to the Treasury Department, there’s a period of uncertainty ahead for how businesses will actually have to report these complex wage averages.