Jamie Dimon took high heat over his 74 percent 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, Sens. Jack Reed (D-R.I.) and Richard Blumenthal (D-Conn.) 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 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 just unveiled by the GOP members of the House Ways and Means Committee. Its remedies take aim as well at huge non-profit salaries. )
Rep. Lloyd Doggett (D-Texas) introduced a House version of the Reed-Blumenthal bill earlier this year. “Most Americans,” Doggett 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. Sen. Chuck Grassley (R-Iowa) 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 are a big part of performance pay. In 2009, Sens. John McCain (R-Ariz.) and Carl Levin (D-Mich.) introduced an options bill to “eliminate a tax incentive [Section 162(m)] that encourages corporate boards to hand out huge executive stock option pay…”
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.
Truthout Is Preparing to Meet Trump’s Agenda With Resistance at Every Turn
Dear Truthout Community,
If you feel rage, despondency, confusion and deep fear today, you are not alone. We’re feeling it too. We are heartsick. Facing down Trump’s fascist agenda, we are desperately worried about the most vulnerable people among us, including our loved ones and everyone in the Truthout community, and our minds are racing a million miles a minute to try to map out all that needs to be done.
We must give ourselves space to grieve and feel our fear, feel our rage, and keep in the forefront of our mind the stark truth that millions of real human lives are on the line. And simultaneously, we’ve got to get to work, take stock of our resources, and prepare to throw ourselves full force into the movement.
Journalism is a linchpin of that movement. Even as we are reeling, we’re summoning up all the energy we can to face down what’s coming, because we know that one of the sharpest weapons against fascism is publishing the truth.
There are many terrifying planks to the Trump agenda, and we plan to devote ourselves to reporting thoroughly on each one and, crucially, covering the movements resisting them. We also recognize that Trump is a dire threat to journalism itself, and that we must take this seriously from the outset.
After the election, the four of us sat down to have some hard but necessary conversations about Truthout under a Trump presidency. How would we defend our publication from an avalanche of far right lawsuits that seek to bankrupt us? How would we keep our reporters safe if they need to cover outbreaks of political violence, or if they are targeted by authorities? How will we urgently produce the practical analysis, tools and movement coverage that you need right now — breaking through our normal routines to meet a terrifying moment in ways that best serve you?
It will be a tough, scary four years to produce social justice-driven journalism. We need to deliver news, strategy, liberatory ideas, tools and movement-sparking solutions with a force that we never have had to before. And at the same time, we desperately need to protect our ability to do so.
We know this is such a painful moment and donations may understandably be the last thing on your mind. But we must ask for your support, which is needed in a new and urgent way.
We promise we will kick into an even higher gear to give you truthful news that cuts against the disinformation and vitriol and hate and violence. We promise to publish analyses that will serve the needs of the movements we all rely on to survive the next four years, and even build for the future. We promise to be responsive, to recognize you as members of our community with a vital stake and voice in this work.
Please dig deep if you can, but a donation of any amount will be a truly meaningful and tangible action in this cataclysmic historical moment.
We’re with you. Let’s do all we can to move forward together.
With love, rage, and solidarity,
Maya, Negin, Saima, and Ziggy