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.

 
Local Gov’t Stories, Events

08.15 RIDE FOR THE OVERRIDE

Ref. : Civic Events

Ref. : Arts & Education Events

Ref. : Public Service Notices

Travel
Books, Films, Arts & Education

09.25 High Hitler: how Nazi drug abuse steered the course of history

09.24 Talking with Strangers: A Journey to the Heart of the Right

Letters

Ref. : Letters to the editor

Health Care & Environment

09.25 Want to Slow Climate Change? Stop Having Babies

09.24 How to reduce the risks of carmageddon

09.24 Will the Gulf of Mexico Remain a Dumping Ground for Offshore Fracking Waste?

09.24 Existing coal, oil and gas fields will blow carbon budget – study

09.24 Dutch parliament votes to close down country's coal industry

09.24 Canada’s Founding Myths Hold Us Back from Addressing Climate Change

09.24 Trump to Fossil Fuel Execs: 'You Will Like Me So Much'

09.24 Earth Could Reach Critical Climate Threshold in Decade, Scientists Warn [we'll all die if denial idiocracy prevails]

09.23 Soil carbon storage not the climate change fix it was thought, research finds

09.23 The New, New Climate Math: 17 Years to Get Off Fossil Fuels, Or Else

09.23 Tribes Across North America Unite in 'Wall of Opposition' to Alberta Tar Sands

09.23 Air Pollution Is Linked to a Diabetes Marker

09.23 Ratifiying the Paris agreement will be a major step but must be the first of many

09.23 Farming on the edge: the Indian salt producers coping with 48C heat

09.23 100 countries push to phase out potentially disastrous greenhouse gas

09.23 Burger King and KFC called out for lagging behind on antibiotic-free meat

News Media Matters

09.22 What Donald Trump and Hillary Clinton aren’t talking about: Policy discussion is missing from the campaign

Daily: FAIR Blog
The Daily Howler

US Politics, Policy & 'Culture'

09.25 Walmart's Sam's Club Scan-and-Go App May Make Cash Registers Obsolete

09.25 Autonomous vehicles could cost America 5 million jobs. What should we do about it?

09.25 How to Cover a Charlatan Like Trump

09.25 A Week of Whoppers From Donald Trump

09.25 HILLARY CLINTON FOR PRESIDENT

09.25 Higher housing prices in blue states may affect presidential election, report says

09.25 Fear of a Female President

09.24 Trump’s Agenda: A Recipe for Civil Unrest

09.24 Channeling Sanders, Clinton Proposes Whopping Billionaire Estate Tax [worldwide normalization of taxes—with full visibility of income and wealth for fairest taxation—must be achieved. Automation is capable of eliminating 45% of jobs NOW, and it will happen rapidly to realize profits.]

09.24 Thousands of Verizon customers are battling data over-limit fees: Money Matters

09.24 HILLARY CLINTON: DEAD-ON COMIC, DULL POLITICIAN

09.22 IACP developed a 10 question survey on pressing criminal justice issues for the 2016 U.S. presidential nominees

09.22 Lies and Lapses on the US Campaign Trail

09.22 Mike Pence, a heartbeat away from the presidency? Now that’s frightening

09.22 Bernie Sanders: The ‘Nation’ Interview

09.22 Whom Should We Blame for Our Deranged Democracy?

09.22 Make the Public Health Insurance Option Central to the 2016 Campaign

09.22 Trump's Giant Conflict of Interest Just Got Bigger

09.22 Meet the Horde of Neo-Nazis, Klansmen, and Other Extremist Leaders Endorsing Donald Trump

09.22 Clinton hasn't won over millennials. And no, sexism isn't to blame

09.22 The Trump Foundation: what's known is shocking. We need to know more

Justice Matters

09.21 SEC Probe Called Possible 'Moment of Reckoning' for Exxon's Climate Crimes

09.21 Warren Skewers Wells Fargo CEO for Greed and 'Gutless Leadership' [8:57 C-Span video]

High Crimes?

09.22 Stopping the War on Children

09.21 Russian planes dropped bombs that destroyed UN aid convoy, US officials say

Economics, Crony Capitalism

09.23 Carney backs green finance to cut emissions and boost growth

09.23 Helicopter money is back in the air

09.23 Wells Fargo's toxic culture reveals big banks' eight deadly sins

09.21 The Coming European Debt Wars

09.21 TTIP 2.0? New Leak Exposes Threats of Lesser-Known TISA Trade Deal

International

09.25 Panic sweeps Calais camp as refugees await the bulldozers [an “empathy wall” blocks acceptance of children]

09.24 Syria bombings leave 1.75 million without running water in Aleppo [videos]

09.24 Larry Sanders, Bernie's Brother, to Fight for David Cameron's MP Seat

09.24 THE COMING CRISIS IN MOSUL

09.23 Eugene V. Debs and the Urgent Need for a New Anti-War Movement

09.23 A Single Migration From Africa Populated the World, Studies Find [we're all distant cousins]

09.23 Obama Puts Syria at Arm’s Length as Carnage Drags On

09.23 The Best News You Don’t Know

09.22 "Indifferent to Yemen's Misery," Senate Approves Massive Saudi Arms Deal [Cardin and Mikulski voted “Yea”]

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: