Reed-Blumenthal Introduce the Stop
Subsidizing Multimillion Dollar Corporate Bonuses Act
WASHINGTON, DC – At
a time when programs like Medicare and defense spending are facing growing
budget austerity, U.S. Senators Jack Reed (D-RI) and Richard Blumenthal (D-CT)
are introducing the Stop Subsidizing Multimillion Dollar Corporate Bonuses Act
(S.1476). This legislation would close a major loophole in current
corporate tax law by putting an end to unlimited tax write-offs on
performance-based executive pay. Over a 10 year window, the Joint
Committee on Taxation estimates this legislation would close a loophole that
costs U.S. taxpayers over $50 billion.
In 1993,
Congress limited the deductibility of certain executive pay to $1 million, with
an exception for performance-based compensation. As a result, over the
last two decades, compensation packages for top executives have often been
structured to avoid paying taxes on corporate earnings. The Economic
Policy Institute estimates that between 2007 and 2010, a total of $121.5
billion in executive compensation was deductible from corporate earnings, and
roughly 55 percent of this total was for performance-based compensation.
“Even as
income inequality rises and middle-class wages stagnate, American taxpayers are
subsidizing tens of billions of dollars in corporate bonuses. We should
be investing in working families, not using taxpayer dollars for tax breaks to
corporations that overpay their executives. Corporations should be free
to pay their executives whatever they wish, just not at the expense of American
taxpayers -- many struggling to make ends meet,” said Senator Blumenthal.
According
to an Institute for Policy Studies report, 25 of the 100 highest-paid corporate
chief executives in the United States took home more in pay than their company
paid in 2010 federal income taxes. And the New York Times notes the median CEO pay in 2012 for
the top 200 CEOs at public companies with at least $1 billion in revenue was
$15.1 million.
The Stop
Subsidizing Multimillion Dollar Corporate Bonuses Act would allow a publicly
traded corporation to deduct only up to $1 million in pay per employee.
“In many
ways our corporate tax system is broken and this is a common-sense solution to
help fix it. I hope we can get bipartisan support for closing this
loophole,” stated Reed.
In 2006,
Senator Chuck Grassley (R-IA), the then-chair of the Senate Committee on
Finance, stated:
“162(m) is broken. …It was well-intentioned. But it
really hasn’t worked at all. Companies have found it easy to get around
the law. It has more holes than Swiss cheese. And it seems to have
encouraged the options industry. These sophisticated folks are working
with Swiss-watch-like devices to game this Swiss-cheese-like rule.”
Specifically,
the Reed-Blumenthal the Stop Subsidizing Multimillion Dollar Corporate Bonuses
Act would:
- Broaden the scope of corporations subject to 162(m) FROM: “publically held corporations that issue any class of common equity securities registered under section 12 of the Securities Exchange Act of 1934 (the ’34 Act)” TO: “any corporation that qualifies as an issuer whose securities are registered under section 12 of the ‘34 Act or that is required to file reports under section 15(d) of the ‘34 Act” The effect of this would be to capture all corporations that file periodic reports, such as quarterly and annual filings, with the Securities and Exchange Commission (SEC) for the benefit of investors.
- Broaden the number of employees FROM: “the CEO and the 3 highest compensated officers” TO: “all current and former employees.”
- Eliminate the exception for commission-based remuneration and for performance-based compensation.
