FacebookTwitterGoogle+RedditEmail

Gold for Executives, Contempt for Taxpayers

by GERALD E. SCORSE

Jamie Dimon took high heat over his 74% mega-raise, but he’s not at fault. The blame goes to a 1993 boondoggle for bigwigs—a boondoggle that’s cost taxpayers by the billions ever since. Congress should call a halt, and the country’s mood could push it to do just that.

Ironically, the law that launched the boondoggle started out aiming to do the opposite. Lavish corporate pay packages had turned off many Americans as the 1990s began. To fight the trend, the ’92 Clinton-Gore campaign proposed a $1 million cap on the tax deductibility of salaries paid to a firm’s top echelon. Companies have an absolute right to set executive pay. Congress likewise has the right to limit the amount that qualifies as a corporate tax write-off. Once elected, Clinton moved to enact the reform.

The final result—Section 162(m) of the Internal Revenue Code—ended up delivering gold to the corporate elite and a slap in the face to America’s taxpayers. The statute did impose a $1 million deductibility cap on publicly-held corporations, but it also created a huge loophole. It wrote into law what quickly became the most gilded words in the gilded world of executive compensation: performance-based pay.

As long as the pay meets IRS benchmarks for “performance-based,” its deductibility is unlimited. Boards of directors routinely find ways to hand out mega-million packages of stock grants, stock options, profit-sharing, stock appreciation rights, every imaginable kind of executive sweetener. Twenty years on, after three presidencies and six Administrations, Section 162(m) stands as a classic example of good intentions leading to bad endings.

A 2012 study by the Economic Policy Institute estimates that Section 162(m) is costing the Treasury about $5 billion a year. A fair number of companies ignore the salary cap and pay more in taxes, but that revenue gets swamped by the shortfall from deductible corporate pay. The Treasury’s wounds from 162(m) have festered forever. With inequality soaring, a few in Congress are finally going after a law that works overtime to drive it higher.

In August 2013, Senators Jack Reed (D-RI) and Richard Blumenthal (D-CT) introduced the Stop Subsidizing Multimillion Dollar Corporate Bonuses Act. Blunt title, blunt purpose: “This legislation would close a major loophole in current corporate tax law by putting an end to unlimited tax write-offs on performance-based executive pay.” The bill calls for a blanket $1 million deductibility cap. As Senator Blumenthal noted, corporations are free to “pay their executives whatever they wish, just not at the expense of American taxpayers…”  (The same thinking, under the heading “Stop Subsidies for Excessive Compensation,” appears in the tax reform plan unveiled late last month by the GOP members of the House Ways and Means Committee.  That plan takes aim as well at the huge salaries paid out by non-profits. )

Rep. Lloyd Doggett (D-TX) introduced a House version of the Reed-Blumenthal bill earlier this year. “Most Americans,” the Congressman said, “would probably be surprised to learn that multimillion dollar executive bonuses are currently tax write-offs.”

Most Americans might be surprised, but legislators in both parties know only too well. Chuck Grassley (R-IA) formerly chaired the Senate Finance Committee. As the 2006 chair, he admitted that Section 162(m) “really hasn’t worked at all. Companies have found it easy to get around…It has more holes than Swiss cheese. And it seems to have encouraged the options industry.” Options play a big part in performance pay; in 2009, Senators Carl Levin (D-MI) and John McCain (R-AZ) co-sponsored a bill which would have extended the current $1 million cap to options awards.

Section 162(m) has failed as tax policy, but it does two things to perfection: it runs up federal red ink, and it shows contempt for taxpayers. Better late than never, Congress should act to stop the bleeding and end the long, long insult.

Gerald E. Scorse helped pass the bill requiring basis reporting for capital gains. He writes articles on tax policy. 

This article originally appeared in The Hill.

More articles by:

CounterPunch Magazine

minimag-edit

Weekend Edition
September 23, 2016
Friday - Sunday
Andrew Levine
The Meaning of the Trump Surge
Jeffrey St. Clair
Roaming Charges: More Pricks Than Kicks
Mike Whitney
Oh, Say Can You See the Carnage? Why Stand for a Country That Can Gun You Down in Cold Blood?
Chris Welzenbach
The Diminution of Chris Hayes
Vincent Emanuele
The Riots Will Continue
Rob Urie
A Scam Too Far
Pepe Escobar
Les Deplorables
Patrick Cockburn
Airstrikes, Obfuscation and Propaganda in Syria
Timothy Braatz
The Quarterback and the Propaganda
Sheldon Richman
Obama Rewards Israel’s Bad Behavior
Libby Lunstrum - Patrick Bond
Militarizing Game Parks and Marketing Wildlife are Unsustainable Strategies
Andy Thayer
More Cops Will Worsen, Not Help, Chicago’s Violence Problem
Louis Yako
Can Westerners Help Refugees from War-torn Countries?
David Rosen
Rudy Giuliani & Trump’s Possible Cabinet
Joyce Nelson
TISA and the Privatization of Public Services
Pete Dolack
Global Warming Will Accelerate as Oceans Reach Limits of Remediation
Franklin Lamb
34 Years After the Sabra-Shatila Massacre
Cesar Chelala
How One Man Held off Nuclear War
Norman Pollack
Sovereign Immunity, War Crimes, and Compensation to 9/11 Families
Lamont Lilly
Standing Rock Stakes Claim for Sovereignty: Eyewitness Report From North Dakota
Barbara G. Ellis
A Sandernista Priority: Push Bernie’s Planks!
Hiroyuki Hamada
How Do We Dream the Dream of Peace Together?
Russell Mokhiber
From Rags and Robes to Speedos and Thongs: Why Trump is Crushing Clinton in WV
Julian Vigo
Living La Vida Loca
Aidan O'Brien
Where is Europe’s Duterte? 
Abel Cohen
Russia’s Improbable Role in Everything
Ron Jacobs
A Change Has Gotta’ Come
Uri Avnery
Shimon Peres and the Saga of Sisyphus
Graham Peebles
Ethiopian’s Crying out for Freedom and Justice
Robert Koehler
Stop the Killing
Thomas Knapp
Election 2016: Of Dog Legs and “Debates”
Yves Engler
The Media’s Biased Perspective
Victor Grossman
Omens From Berlin
Christopher Brauchli
Wells Fargo as Metaphor for the Trump Campaign
Nyla Ali Khan
War of Words Between India and Pakistan at the United Nations
Tom Barnard
Block the Bunker! Historic Victory Against Police Boondoggle in Seattle
James Rothenberg
Bullshit Recognition as Survival Tactic
Ed Rampell
A Tale of Billionaires & Ballot Bandits
Kristine Mattis
Persnickety Publishing Pet-Peeves
Charles R. Larson
Review: Helen Dewitt’s “The Last Samurai”
David Yearsley
Torture Chamber Music
September 22, 2016
Dave Lindorff
Wells Fargo’s Stumpf Leads the Way
Stan Cox
If There’s a World War II-Style Climate Mobilization, It has to Go All the Way—and Then Some
Binoy Kampmark
Source Betrayed: the Washington Post and Edward Snowden
John W. Whitehead
Wards of the Nanny State
FacebookTwitterGoogle+RedditEmail