[Congressional Record Volume 148, Number 93 (Thursday, July 11, 2002)]
[Senate]
[Page S6655]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. ROCKEFELLER:
  S. 2722. A bill to amend the Internal Revenue Code of 1986 to ensure 
the proper tax treatment of executives compensation, and or other 
purposes; to the Committee on Finance.
  Mr. ROCKEFELLER. Madam President, the corporate accounting scandals 
that have unfolded over the previous few months have caused 
incalculable damage to the American economy. Millions of people have 
been harmed, among them some of our most vulnerable citizens, including 
retirees on fixed incomes and families who have saved for years to 
educate their children or finally buy a home. Loss of confidence 
threatens our economy and diminishes hope for the millions who have 
lost their jobs in the last 18 months. And the cost of equity is 
rising, making it more difficult for the vast majority of honest and 
energetic entrepreneurs to turn their ideas into economic growth.
  This is not a bubble bursting; it is, in great measure, the result of 
a considerable diminution of regulation at the behest of powerful 
lobbies, over the objections of many people.
  Today, the Senate is debating the most effective way to restore 
balance between entrepreneurship and oversight, to ensure that 
corporate excesses do not again steal the savings of millions of 
people. The underlying Senate bill is based on accounting reforms and 
tougher enforcement. The Finance Committee is about to mark up its own 
bill dealing with diversification requirements, executive compensation, 
and notification and disclosure regarding 401(k) plans.
  I fully support Senator Sarbanes' bill and will support the Finance 
Committee proposal as well. And today I propose legislation that will 
complement my colleagues' efforts and help us move toward our goal of 
restoring confidence in American business and American businesspeople. 
Where legislation already under consideration focuses largely on 
oversight and punishment--two critical sides of the triangle--my bill 
attacks the incentives to cut corners or commit crimes in the arena of 
executive compensation.
  This legislation will protect workers and shareholders as Congress 
carefully sorts through the appropriate measures.
  Currently, Federal regulations permit a number of frankly sleazy 
accounting practices which allow corporations and their executives to 
take millions of dollars away from shareholders, creditors, and the 
Treasury, without any penalty at all. Some of the most obvious abuses 
aren't even crimes. My proposal will help to stop white collar crime 
before it is committed, by taking the common sense step of putting the 
lid on the cookie jar.
  This bill will do four things: 1. Right now, corporations may 
transfer funds to an executive's deferred compensation account, giving 
that executive certain access to the money but potentially also 
removing it from the reach of shareholders and creditors. But since it 
is termed ``deferred,'' the executive pays no taxes. Currently, Section 
132 of the Revenue Code prevents regulators from cracking down on this 
practice. My legislation gives Treasury the authority to examine the 
constructive receipt doctrine and close loopholes that allow 
inappropriate deferral of taxation. It also gives Treasury the 
authority to act on situations where executive assets are supposedly 
subject to the claims of an employer's creditors, but in reality, are 
protected from legitimate claims. Either the individual must pay income 
tax, or the funds must be corporate assets subject to claims. They 
can't have it both ways.
  2. Currently, corporations can give their senior executives massive 
loans, with no real expectation of repayment. These loans are 
effectively theft from the employees and shareholders, since they 
represent revenue given in compensation which will never be repaid, 
reinvested, or distributed as dividends. And they are theft from the 
Treasury as well; since they are accounted as loans, the recipient 
doesn't pay taxes on them. It's a tax-free performance bonus, often 
given--as we saw in the Adelphi and WorldCom cases--when the executive 
deserves more to be fired than to be paid. My legislation will make 
sure a loan is a loan: if a loan doesn't require security or have any 
enforceable repayment schedule, it's income and it will be taxed, just 
like the salaries of rank-and-file workers are taxed.
  3. Right now, company employees may be unable to sell their stock 
while executives are dumping theirs and creating--as analysts take note 
and supply overwhelms demand--the kind of stock-price death spiral that 
took the life savings of thousands of Enron employees.
  Back in the early 1980's, Congress responded to the trend of 
corporations providing their executives with ``gold parachutes'' with a 
20 percent excise tax on those payments. I believe that the excise tax 
on golden parachutes should also be applied to the sales of corporate 
stock by corporate executives during periods when regular employees of 
the company are not able to freely sell their stock in their company 
retirement plans. This would be a temporary, six-month provision, to 
deter corporate executives from taking advantage of the existing 
uncertainty as Congress considers other possible reforms to encourage 
more equitable treatment of rank-and-file employees and corporate 
executives. And it will be a bridge from the current structure to one 
in which employees have the same ability to sell their stock as 
insiders have.
  4. Additionally, my bill will prevent corporate executives from 
getting a free ride when their corporation moves offshore for tax 
avoidance purposes. Under current law, if an American corporation 
dissolves and is then reincorporated in a foreign country, shareholders 
of the corporation are required to pay capital gains on the 
``exchange'' of their stock in the ``old corporation'' for stock in the 
``new corporation,'' even though they never actually sell their stock. 
Meanwhile, corporate executives, who have engineered the move offshore, 
are under no such obligation regarding stock options they receive as 
compensation. My bill would require executives to pay capital gains 
taxes on the ``exchange'' of their stock options when they move 
offshore to avoid taxation. I believe this provision will provide a 
much-needed disincentive to corporate executives seeking to avoid the 
reach of the IRS through corporate expatriation.
  I agree with all those who would increase oversight and penalties, 
but I say, let's also look at first causes--the executive compensation 
funds. That's where some of the greatest opportunities for 
inappropriate, unfair, and unethical practices are--practices that 
disadvantage average workers and investors and are undermining 
confidence in America's capital markets. And it's time for that to 
change.
  Finally, I am appalled at the problem of executives benefitting from 
what can only be considered excessive compensation arrangements in the 
waning days before bankruptcy of a failing corporation. I am looking 
for a way to prevent those arrangements in the final months before a 
corporation closes, and I hope to have a proposal ready for 
introduction soon.
                                 ______