[Congressional Record Volume 163, Number 6 (Tuesday, January 10, 2017)]
[Senate]
[Pages S206-S207]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. REED (for himself and Mr. Blumenthal):
  S. 82. 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, I am reintroducing the Stop Subsidizing 
Multimillion Dollar Corporate Bonuses Act with Senator Blumenthal. This 
legislation would end special tax exemptions for huge CEO bonuses by 
closing a glaring loophole that allows publicly traded corporations to 
deduct the cost of multimillion-dollar bonuses from their corporate tax 
bills. If executives perform, companies may compensate them however 
they wish, but U.S. taxpayers shouldn't have to subsidize these massive 
bonuses.
  Under current tax law, when a publicly traded 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 $1 million in 
cash compensation and $14 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 giveway of $5.25 million.
  The Stop Subsidizing Multimillion Dollar Corporate Bonuses Act puts 
an

[[Page S207]]

end to that giveaway and limits public corporations to a single $1 
million per employee deduction as was originally intended. Using the 
same example above, a profitable public corporation could deduct $1 
million of the CEO's $15 million compensation package but could not 
claim a deduction on the remaining $14 million. So instead of claiming 
$5.25 million in Federal subsidies for the CEO's pay, this public 
corporation will be contributing $4.9 million toward improving our 
roads, our schools, and our military--costs that middle-class families 
are already underwriting.
  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.
  Specifically, our legislation first applies 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 desire, but compensation above and beyond $1 million would 
no longer be subsidized by other hard-working taxpayers 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 extravagant compensation packages 
shouldn't turn on whether a publicly traded corporation falls into one 
SEC reporting requirement or another, and our bill closes this 
technical loophole.
  Even our President-elect has acknowledged the problem of excessive 
CEO pay. When asked about this issue on CBS's ``Face the Nation'' on 
September 13, 2015, then-Presidential Candidate Trump said, ``Well, it 
does bug me. It's very hard if you have a free enterprise system to do 
anything about that. The boards of companies are supposed to do it. But 
I know companies very well. And the CEO puts in all his friends. And so 
you will take a company like, I could say Macy's or many other 
companies, where they put in their friends as head of the company, and 
they get whatever they want, because the friends love sitting on the 
board. So that's a system that we have. And it's a shame and it's 
disgraceful. And, sometimes, the boards rule. But I would say it's 
probably less than 10 percent. And you see these guys making these 
enormous amounts of money. It's a total and complete joke.''
  Our legislation tackles this issue head on by ending the public 
subsidy of excessive CEO compensation, derailing the lavish tax breaks 
that exclusively benefit public corporations. This is simply a matter 
of fairness, ensuring that corporations--and not hard-working taxpayers 
who face their own challenges in this economy--are paying for the 
multimillion-dollar bonuses they have decided to dole out to their 
CEOs.
  We need to prioritize tax breaks that grow our economy and strengthen 
the middle class. This bill would eliminate some of the inequity in the 
Tax Code. Again, companies are free to pay their executives as much as 
they want, but the American taxpayer shouldn't help foot the bill for a 
CEO's multimillion-dollar bonus.
  I thank Public Citizen, Americans for Financial Reform, the AFL-CIO, 
International Brotherhood of Teamsters, and MIT professor Simon Johnson 
for their support. I also 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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