WASHINGTON, DC – According to the Economic Policy Institute, the gulf in pay between CEOs and average workers is 290 to 1. In an effort to ensure that hardworking U.S. taxpayers are not forced to subsidize lavish executive compensation packages while making a fraction of CEO pay, U.S. Senator Jack Reed (D-RI) today reintroduced legislation that would finally fully close a major loophole in corporate tax law.

The Stop Subsidizing Multimillion Dollar Corporate Bonuses Act (S. 1576) would put an end to a special tax break for huge executive bonuses by preventing publicly traded corporations from deducting the cost of any multimillion-dollar pay package paid to executives from their corporate tax bills.

Under section 162(m) of the tax code, publicly traded corporations cannot deduct more than $1 million in compensation paid to their top executives.  But section 162(m) does not cover compensation paid to all public company employees, and corporations have long exploited this loophole to claim tax deductions for executive compensation packages that far exceed $1 million.  As publicly traded corporations offer lucrative compensation deals to increasing numbers of executives and not just those at the very top of the organization, U.S. taxpayers are shouldering the cost.

Both Republican and Democratic administrations have signed laws based on earlier versions of this legislation in order to curtail the abuse of this deduction.  This includes ensuring that performance-based compensation is actually counted as compensation under section 162(m) and increasing the number of highly paid executives who are subject to section 162(m).  Partially tightening the law in these ways has saved taxpayers billions of dollars.  However, the full loophole has still not been closed, and taxpayers continue to subsidize extravagant compensation.

The Stop Subsidizing Multimillion Dollar Corporate Bonuses Act would address the remaining gaps by applying section 162(m) restrictions to all employees of publicly traded corporations so that all compensation is subject to a deductibility cap of $1 million per employee.  The nonpartisan Joint Committee on Taxation has estimated that closing this loophole would save taxpayers nearly $80 billion over ten years.  In other words, taxpayers are currently paying around $8 billion each year to subsidize exorbitant executive pay packages.

“Corporations shouldn’t be able to get out of paying their fair share of taxes by lavishing executives with jumbo bonuses at the expense of taxpayers, workers, and shareholders.  Taxpayers shouldn’t be subsidizing millionaire compensation and it’s way past time for this loophole to be fully closed,” said Senator Reed.  “Companies are free to pay their executives as much as they want.  But it is unfair to force hardworking American taxpayers to 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 the ones who pay for multimillion dollar bonuses.  Success and capitalism are not at issue here.  What’s at issue is a broken system that has taxpayers subsidizing multimillion dollar executive bonuses while those same taxpayers are struggling with rising costs.”

The Stop Subsidizing Multimillion Dollar Corporate Bonuses Act is also cosponsored by U.S. Senators Richard Blumenthal (D-CT), Tammy Baldwin (D-WI), Jeff Merkley (D-OR), Sheldon Whitehouse (D-RI), Chris Van Hollen (D-MD), Bernard Sanders (I-VT), and Elizabeth Warren (D-MA).

The bill is supported by Public Citizen, Americans for Financial Reform, the AFL-CIO, the International Brotherhood of Teamsters, MIT Professor and Nobel Prize Winner Simon Johnson, Take On Wall Street, Americans for Tax Fairness, and the Institute for Policy Studies, Global Economy Project.

“This is a timely and important proposal, addressing a basic issue of fairness in the American economy,” said MIT Professor and Nobel Prize Winner Simon Johnson.

“It’s high time our tax code stopped rewarding large corporations for giving their executives extravagant pay packages. We applaud Senator Reed and Representative Doggett for introducing legislation to finally close a senseless loophole that subsidizes outrageous executive pay,” said Natalia Renta, Associate Director of Corporate Governance and Power at Americans for Financial Reform.