Michigan House Bill HB5396

Michigan 2023-2024 Regular Session

• Introduced: 1/16/24
• Refer: 1/16/24

Caption

Corporate income tax: rate; pay ratio surcharge for certain corporations; provide for. Amends 1967 PA 281 (MCL 206.1 - 206.847) by adding sec. 684.

Impact

The implementation of this surcharge has significant implications for state tax revenue and corporate practices. By imposing a financial penalty on companies with high executive-to-median employee pay ratios, the bill seeks to deter extreme disparities in compensation within corporations. Proponents of the bill argue that it will promote equity in corporate pay practices, potentially reducing income inequality and leading to a more sustainable economic environment. However, it also represents an increased regulatory burden on businesses, requiring them to accurately report their pay ratios and potentially leading to higher operational costs.

Summary

House Bill 5396 proposes an amendment to the 1967 Income Tax Act (MCL 206.1 to 206.847) by introducing a new section, 684, that establishes an annual surcharge for certain corporate taxpayers based on their disclosed pay ratios. This surcharge is set to take effect for tax years starting on or after October 1, 2024. The surcharge percentage varies according to the pay ratio, ranging from 0% for a ratio of 50 to 1 or less, to as high as 50% for ratios of 500 to 1 or more. The bill aims to encourage corporations to maintain reasonable pay ratios in their compensation structures.

Contention

Notable points of contention surrounding HB 5396 stem from concerns about its impact on corporate behavior and state economic competitiveness. Critics may argue that the surcharge could discourage businesses from operating in Michigan or lead to job losses if companies seek to relocate to states with more favorable tax conditions. Furthermore, there are questions about the fairness and practicality of relying on SEC pay ratio disclosures, as well as concerns that such measures may not effectively address the underlying issues of income inequality.