Statements on Introduced Bills and Joint Resolutions

Floor Speech

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Mr. REED. Mr. President, today I am introducing, along with Senator BLUMENTHAL, the Stop Subsidizing Multimillion Dollar Corporate Bonuses Act. This bill closes a loophole that allows publicly traded corporations to deduct an executive's pay over $1 million from their tax bill.

Under current tax law, when a public corporation calculates its taxable income, generally it is 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. However, a loophole has allowed many public corporations to avoid such limits and freely deduct excessive executive compensation. For example, because of this loophole, if a CEO receives $15 million in compensation in a given year, that amount can cause the corporation's taxable income to decline by $15 million. With the current corporate tax rate at 35 percent, the corporation in this case would pay less tax to the U.S. Treasury, up to 35 percent of $15 million, leaving the corporation's shareholders to bear only $9.75 million of the $15 million cost of executive pay, while U.S. taxpayers foot the remaining $5.25 million.

The Stop Subsidizing Multimillion Dollar Corporate Bonuses Act would allow a public corporation to deduct compensation up to only $1 million. Using the same example, this would mean that corporate shareholders would bear $14.65 million of the $15 million in compensation.

Over a ten-year window, the Joint Committee on Taxation has estimated this legislation would close a loophole that costs U.S. taxpayers over $50 billion by making some simple changes to existing law.

First, our legislation extends section 162(m) of the tax code 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 want, but compensation above and beyond $1 million would no longer be bankrolled, in part, through our tax code.

Second, our bill removes the exemption for performance-based compensation, which currently permits compensation deductions above and beyond $1 million when executives have met performance benchmarks set by the corporation's Board of Directors. As a result, publicly traded corporations would still be able to incentivize their executives, but all such incentives would be subject to a corporate deductibility cap of $1 million.

Finally, our legislation makes 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). Currently, this section of the tax code only covers some publicly traded corporations who are required to provide these periodic reports to their shareholders. Discouraging unrestrained compensation packages shouldn't hinge on whether a publicly traded corporation falls into one SEC reporting requirement or another, and my bill closes this technical loophole.

With this legislation, we aim to put an end to some of the extravagant tax breaks that exclusively benefit public corporations. This is simply a matter of fairness at a time of fiscal belt tightening, when so many of our constituents have already sacrificed.

I want to thank Senator BLUMENTHAL and his staff for working with me on this issue, and I urge our colleagues to join us by cosponsoring this legislation.

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