During the 2008 presidential campaign, Barack Obama promised to close loopholes in the corporate tax deductibility of CEO pay by changing Internal Revenue Service definitions of what counts as taxable compensation.
In 2009, we rated this promise Stalled, and now, three years later, we see no evidence of further action on this promise.
Section 162(m) of the Internal Revenue Code, enacted in 1993, limits how much executive compensation can be deducted at publicly traded corporations to $1 million per executive. But the provision has an exception -- corporations may deduct "performance-based” compensation. Critics say this amounts to a major loophole, because while shareholders must approve the compensation, they are not required to receive detailed accountings of the compensation plan.
A report released in August 2012 by the liberal Economic Policy Institute estimates that tax-deductible executive compensation cost the federal treasury $30.4 billion between 2007 and 2010.
However, no legislation or administration rule revisions addressed the deductibility of CEO pay.
"I can confidently say that there has been no change to the definition of compensation” during Obama's tenure, said Steven Balsam, an accounting professor at Temple University's Fox School of Business who wrote the institute's report.
We rate this a Promise Broken.