[Congressional Record Volume 159, Number 113 (Thursday, August 1, 2013)]
[Senate]
[Pages S6235-S6236]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. REED (for himself and Mr. Blumenthal):
  S. 1476. A bill to amend the Internal Revenue Code of 1986 to expand 
the denial of deduction for certain excessive employee remuneration, 
and for other purposes; to the Committee on Finance.
  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

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join us by cosponsoring this legislation.

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