Newspaper logo  
 
 
Print view: Gold for Executives, Contempt for Taxpayers
FISCAL MATTERS:

Gold for Executives, Contempt for Taxpayers

by Gerald E. Scorse
Twenty years on, after three presidencies and six Administrations, Section 162(m) stands as a classic example of good intentions leading to bad endings.

Jamie Dimon, the current chairman, president and chief executive officer of JPMorgan Chase, 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.


© 2014 Gerald E. Scorse. Scorse's articles on taxes have appeared in publications across the country.



Copyright © 2014 The Baltimore News Network. All rights reserved.

Republication or redistribution of Baltimore Chronicle content is expressly prohibited without their prior written consent.

Baltimore News Network, Inc., sponsor of this web site, is a nonprofit organization and does not make political endorsements. The opinions expressed in stories posted on this web site are the authors' own.

This story was published on March 22, 2014.

 

03.26 Natural gas leaks from power plants, refineries, 100 times greater than thought

03.25 THE PLANT NEXT DOOR

03.25 Colorado Youth Score Decisive Legal Victory Against Fracking Industry

03.25 Keystone XL: Trump issues permit to begin construction of pipeline ["Stupid is as stupid does." –Forrest Gump]

03.25 Rotavirus vaccine could save lives of almost 500,000 children a year

News Media Matters

03.27 PBS is the only network reporting on climate change. Trump wants to cut it

Daily: FAIR Blog
The Daily Howler

US Politics, Policy & 'Culture'

03.29 With House Vote, GOP Puts Your Personal Online Data Up for Sale [not just loss of privacy, its new data gathering that could be used to hurt you]

03.29 Soybeans could surpass corn plantings amid solvency concerns for US farmers

03.29 America has never seen a party less caring than 21st-century Republicans [an immoral, sociopathic focus]

03.29 America's deportation squads want to expel our neighbours. We are saying no

03.28 The Feuding Kleptocrats

03.28 Trump signs four bills to roll back Obama-era regulations

03.28 A white supremacist slew a man in Manhattan. Why is the president silent?

03.28 Is the US facing an epidemic of 'deaths of despair'? These researchers say yes

03.28 The Trump Administration’s War on Science

03.27 How the Disappearing Middle Class Threatens Our Democracy [Citizen's United ruling is ruining America]

03.27 How the Disappearing Middle Class Threatens Our Democracy

03.27 'Whoa, Whoa, Whoa': Sanders Says Democrats' Intransigence Is Solution, Not Problem [videos]

03.27 The DLC Lives: "Third Way" Democrats Are Trying to Push the Party Rightward

03.27 Donald Trump's dizzying Time magazine interview was 'Trumpspeak' on display

03.27 Protesters target Connecticut's uber wealthy with 'tax bills' in bid to end loophole

03.27 'People aren't spending': stores close doors in 'oversaturated' US retail market

Justice Matters

03.29 HOW THE WHITE HOUSE AND REPUBLICANS BLEW UP THE HOUSE RUSSIA INVESTIGATION [FBI's investigation continues (until AG Sessions figures out a way to stop it?)]

03.24 TRUMP’S RUSSIA PROBLEM IS FAR FROM MARGINAL

High Crimes?

03.29 Spanish court to investigate Syrian 'state terrorism' by Assad regime

03.26 Iraq suspends Mosul offensive after coalition airstrike atrocity

03.25 The US Is Bombing Syria So Much That Watchdogs Can't Keep Up

03.25 Mosul's children were shouting beneath the rubble. Nobody came

Economics, Crony Capitalism

03.29 Richard Posner: “The Real Corruption Is the Ownership of Congress by the Rich”

03.25 Wall Street First

03.23 Bank that lent $300m to Trump linked to Russian money laundering scam

International

03.29 Donald Trump, Lost in Africa

03.29 An Unholy Alliance

03.29 Millions are on the brink of starvation in east Africa. We must act fast [food delivery is very difficult]

03.29 Broken promises for the children of Bangui abused by peacekeepers

03.29 'They take us very seriously now': how co-operatives could take back Kampala [organized co-ops could raise employment wherever corporations won't invest]

03.28 Negotiations to ban nuclear weapons begin, but Australia joins US boycott

03.27 Two Years of Uncertainty: Europe Prepares for Tough Brexit Negotiations

03.27 Left Behind: Germany's Race to Catch Up in the Startup World

03.27 A Wounded Metropolis: London in the Age of Terror and Brexit

03.26 Foreign companies flock to build nuclear plants in the UK [what could go wrong?]

03.26 Congolese militia decapitates more than 40 policemen as violence grows

03.26 Africans are rising - we can hold our leaders to account and build a better kind of future

03.26 Rise of Hindu ‘extremist’ spooks Muslim minority in India’s heartland

03.26 Marine Le Pen and Emmanuel Macron face off for the soul of France

03.26 'A runaway crisis': Argentina activists aid shanty towns state has left behind

03.26 In war-scarred Gaza, water pollution behind health woes

We are a non-profit Internet-only newspaper publication founded in 1973. Your donation is essential to our survival.

You can also mail a check to:
Baltimore News Network, Inc.
P.O. Box 42581
Baltimore, MD 21284-2581
Google
This site Web
 

Public Service Ads: