WASHINGTON, DC – Today, U.S. Senators Jack Reed (D-RI) and Richard Blumenthal (D-CT), along with U.S. Representative Lloyd Doggett (D-TX), are reintroducing the Stop Subsidizing Multimillion Dollar Corporate Bonuses Act. 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. The Reed-Blumenthal-Doggett bill would end special tax deductions for huge executive bonuses and prevent publicly traded corporations from deducting the cost of multimillion-dollar bonuses from their corporate tax bills.
Under section 162(m) of the tax code as amended by the 2017 Trump tax law (TCJA), when a publicly traded corporation calculates its taxable income, it is generally permitted to deduct the cost of compensation from its revenues, with limits up to $1 million for some of the firm's most senior executives.
In the last Congress, the TCJA closed some of the pre-existing 162(m) loopholes by taking some of the provisions from the prior version of the Stop Subsidizing Multimillion Dollar Corporate Bonuses Act. For example, the TCJA incorporated a provision removing the exemption for performance-based compensation, which previously permitted compensation deductions above and beyond $1 million when executives met performance benchmarks set by the corporation's Board of Directors.
In addition, a technical correction to ensure that all publicly traded corporations that are required to provide quarterly and annual reports to their investors under Securities and Exchange Commission rules and regulations are subject to section 162(m) was also included in the TCJA. Previously, this section of the tax code only covered some publicly traded corporations who are required to provide these periodic reports to their shareholders.
While these were positive steps, more should have been done, such as applying section 162(m) to all employees of publicly traded corporations so that all compensation is subject to a deductibility cap of $1 million.
Partially closing these 162(m) loopholes saved taxpayers $9.2 billion according to the Joint Committee on Taxation (JCT), but according to Americans for Tax Fairness: “Extending the $1 million deductibility cap to all forms of compensation for all employees might generate about $20 billion over 10 years. This is based on JCT’s original $50 billion revenue estimate, discounted to $30 billion because of the 40% corporate tax cut, and subtracting the $9.2 billion already being raised by the TCJA’s partial reform.”
The Stop Subsidizing Multimillion Dollar Corporate Bonuses Act of 2019 would finish what was started by extending section 162(m) to all employees of publicly traded corporations so that all compensation is subject to a deductibility cap of $1 million. Publicly traded corporations would still be permitted to pay their executives as much as they desire, but compensation above and beyond $1 million would no longer be subsidized by other hardworking taxpayers through our tax code. Specifically, the Stop Subsidizing Multimillion Dollar Corporate Bonuses Act would broaden the number of employees from: “the CEO, CFO, and the 3 highest compensated officers” to: “all employees.”
“Corporations shouldn’t be able to get out of paying their fair share of taxes by lavishing senior executives with jumbo bonuses at the expense of taxpayers, workers, and shareholders. This bill would eliminate a major loophole in the tax code,” said Senator Reed. “Companies are free to pay their executives as much as they want. But the American taxpayer shouldn’t help foot the bill for multimillion-dollar bonuses. The Stop Subsidizing Multimillion Dollar Corporate Bonuses Act puts an end to this give-away and will restore fairness to the tax code and ensure corporations, not taxpayers, are not the ones who pay for multi-million dollar bonuses. Success and capitalism are not at issue here. What’s at issue is a broken system that has taxpayers subsidizing multi-million dollar executive bonuses while those same taxpayers are struggling with rising health care and housing costs.”
“This bill would end lavish tax breaks for corporations that overpay their executives, so we can invest in working families and their needs,” said Senator Blumenthal. “It is unconscionable that American taxpayers subsidize tens of billions of dollars in corporate bonuses while middle-class wages stay flat and income inequality rises.”
“Our tax code has a perverse incentive for companies: the more you pay your executives, the less you’ll pay in taxes,” said Congressman Doggett. “It is wrong to subsidize multimillion-dollar pay packages for Wall Street executives. Corporate giants can pay what they choose, but don’t ask working families to pick up the tab.”