WASHINGTON, DC - If taxpayers are forced to help companies and industries impacted by the novel coronavirus (COVID-19), U.S. Senator Jack Reed (D-RI) wants to protect and reimburse taxpayers and ensure accountability. Under Reed’s proposed legislation, the Protecting Taxpayers’ Return on Investment Act (S. 3526), the federal government would be granted ‘warrants’ to acquire non-voting stock in firms that profit from the taxpayer-funded bailout.
A stock warrant is a contract between a company and investors that provides the investor the option to purchase non-voting shares of the company's stock at a specific price. Under Senator Reed’s proposal, taxpayers will share in the gain when the company recovers.
“We will spare no effort in combatting coronavirus and restoring our nation’s economy. But we must do so in a smart, responsible way that protects taxpayers and builds on lessons learned from the 2008 bailout,” said Senator Reed, a senior member of the Banking Committee. “It is everyone’s interest to ensure American companies will make a strong comeback from the coronavirus, and I want the federal government to invest wisely to ensure they do. When Warren Buffet makes investments in struggling companies that eventually turnaround, he is lauded as an astute investor and reaps billions in profits. Similarly, if taxpayer capital is needed, the terms must be fair to taxpayers, and they should be rewarded for helping struggling companies turnaround.”
Reed’s new bill, the Protecting Taxpayers’ Return on Investment Act, is modeled after successful legislation Reed authored in 2008 that gave the federal government warrants to purchase nonvoting stock in companies that participated in the bailout plan, so that taxpayers would also profit should the firms later flourish.
“As the Senate and Administration work on an economic relief package, my focus is: public health investments to defeat the coronavirus and preserve our health care services, workers and families who are coping with severe economic dislocation, small businesses who are losing workers, customers, and the ability to pay their bills, as well as business sectors that have been massively changed. That’s not something we can do easily, and it’s not inexpensive, but saving lives and saving our economy are worth it,” said Senator Reed.
“Extraordinary federal aid like this should not line the pockets of CEOs. And if taxpayers are taking on these financial risks, they should also share in potential rewards when these same institutions recover and start seeing increased profits and higher stock prices down the line,” noted Reed. “Taxpayers should not be forced to assume all the risk and then let the companies get all the reward. That is not fair in any kind of deal. This will be an important way for the U.S. Treasury to recoup some of the taxpayer investment if a bailout program is enacted.”
In September of 2008, Reed authored legislation giving the federal government warrants to purchase non-voting stock in financial companies that participated in the bailout plan, so that taxpayers might be able to profit should the firms flourish. As a result of Reed’s warrants provision, taxpayers earned $9.6 billion.
Under the Protecting Taxpayers’ Return on Investment Act of 2020:
• Companies seeking extraordinary taxpayer assistance must provide warrants (right to purchase non-voting common stock) to the Treasury Secretary so that when companies recover, taxpayers also benefit from the upside.
• Participating companies should be American companies that pay U.S. taxes and have not used complex corporate structures to evade U.S. taxation, while continuing to operate in the U.S. and increasing the tax burden to American taxpayers.
• Following the Troubled Asset Relief Program (TARP) model, participating companies may not use the tax code to subsidize excessive executive compensation.