January 29, 2014

Today, U.S. Rep. Lloyd Doggett (D-TX) introduced the Stop Subsidizing Multimillion Dollar Corporate Bonuses Act. Most Americans would probably be surprised to learn that multimillion dollar executive bonuses are currently tax write-offs. President Obama highlighted the growing problem of income inequality in last night’s State of the Union Address. This legislation addresses two factors driving the widening gap: exorbitant executive pay and corporate tax avoidance. Rep. Doggett’s bill would close a major loophole in current corporate tax law by putting an end to unlimited tax write-offs on 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.


Rep. Doggett said, “Our current tax law has a perverse incentive for companies: the more you pay your executives, the less you’ll pay in taxes. This bill says to the JP Morgan Chases of the world: You can choose to pay Jamie Dimon $20 million, in a year that his bank paid billions in penalties for wrongdoing; just don’t expect the American taxpayer to pick up your tab. As we push for a living wage for all Americans, why should working Americans subsidize those making nearly 300 times the average worker?”


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.


U.S. Senators Jack Reed (D-RI) and Richard Blumenthal (D-CT) introduced identical legislation, S. 1476, last year.   


The bill is endorsed by Public Citizen, Americans for Financial Reform, the International Brotherhood of Teamsters, Service Employees International Union, and the Institute for Policy Studies, Global Economy Project. 


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, closing the existing loophole by:

·        Broadening the scope of corporations subject to 162(m) --

o   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)”

o   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.

·        Broadening the number of employees --

o   FROM: “the CEO and the 3 highest compensated officers”

o   TO: “all current and former employees.”

·        Eliminating the exception for commission-based remuneration and for performance-based compensation.