Congressman Introduces Bill to End Tax Write-off for Lavish Executive Bonuses

Rep. Lloyd Doggett, D-Texas, has introduced legislation to limit tax write-offs for executive bonuses to $1 million per employee.

The Stop Subsidizing Multimillion Dollar Corporate Bonuses Act would expand upon a 1993 law that tried to limit corporate bonuses, but which many companies have since found ways to get around. Doggett’s bill 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 the restrictions.

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.

Doggett’s bill would amend Section 162(m) of the Tax Code, changing the wording 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, including quarterly and annual filings, with the Securities and Exchange Commission.

In addition, the bill would broaden the number of employees in Section 162(m) from “the CEO and the 3 highest compensated officers” to “all current and former employees.” Doggett’s bill would also eliminate the exceptions for commission-based remuneration and performance-based compensation.

Congress’s Joint Committee on Taxation estimates the legislation would generate over $50 billion over a 10-year period.

“Our current tax law has a perverse incentive for companies: the more you pay your executives, the less you’ll pay in taxes,” Doggett said in a statement Wednesday. “This bill says to the JPMorgan 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?”

Senators Jack Reed, D-RI., and Richard Blumenthal, D-Conn., introduced similar legislation, S. 1476, in the Senate last year (see Senators Introduce Bill to Limit Tax Write-offs for Executive Bonuses).   

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