Republican Tax Reform Proposal and Stock Plans

David Camp (R-Michigan), the chairman of the House Ways and Means Committee, introduced a thousand-page "discussion draft" of his comprehensive proposal on tax reform. The proposal would make some profound changes, such as introducing limits on mortgage interest deductions, but it is silent on ESOPs. It would, however, disallow tax deductions for compensation in excess of $1 million paid to the top five executives at companies, even when such compensation is performance-based. (The $1 million limit also exists under current law, but it exempts performance-based pay.) The plan would also repeal the alternative minimum tax (AMT) and would require mark-to-market accounting for stock options, under which the gain on stock options would be calculated on current value, whether or not they are exercised in a given tax year.