Statements on Introduced Bills and Joint Resolutions

Floor Speech

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

Under current tax law, when a public corporation calculates its taxable income, it is generally 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 relating to performance-based compensation has allowed many public corporations to avoid such limits and freely deduct excessive executive compensation. To illustrate how this loophole works, if a CEO receives $15 million in performance-based compensation in a given year, the public corporation's taxable income would decline by $15 million. With the current corporate tax rate at 35 percent, the corporation in this case would receive a tax cut of $5.25 million.

The Stop Subsidizing Multimillion Dollar Corporate Bonuses Act would instead allow a public corporation to deduct all forms of compensation up to only $1 million per employee. Using the same example above, a profitable public corporation, after deducting only $1 million from the $15 million in CEO compensation, would then pay $4.9 million in taxes. In short, instead of costing the government $5.25 million, this public corporation will be paying $4.9 million in taxes, reducing the burden on middle-class families and our national debt.

Indeed, over a 10-year window, the Joint Committee on Taxation, in their most recent assessment, estimated that closing this loophole would save U.S. taxpayers over $50 billion.

First, our legislation extends section 162(m) of the Tax Code to apply 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 desire, but compensation above and beyond $1 million would no longer be subsidized 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 that 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 our 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, ensuring that corporations--and not taxpayers who face their own challenges in this economy--are paying for the multimillion dollar bonuses they have decided to dole out.

I want to thank Senator Blumenthal for working with me on this issue, and I urge our colleagues to join us in cosponsoring this legislation.

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