Ending Tax Breaks For Corporate Wrongdoing

By Patrick Leahy

Vermonters, like millions of Americans across the country, are preparing for another tax deadline.  Middle class families work hard all year and, come Tax Day, many of us question whether our tax system is fair.  And no wonder.  Billion-dollar corporations routinely write off their most egregious misconduct as nothing more than the cost of doing business, saving millions of dollars.  And, in some cases, padding the wallets of wealthy CEOs.  This is not only unfair to hardworking families who struggle to pay their monthly bills, it simply wrong as a matter of a fair tax policy.  We must close this tax loophole, and that’s why I authored the No Tax-Write Offs for Corporate Wrongdoers Act.

The law is broken.  Today big corporations can deduct the cost of certain court-ordered penalties, including punitive damages, as an “ordinary” business expense.  In 1994, when the Exxon Valdez spilled 11 million gallons of oil, devastating Alaska’s southern coast, a jury decided the corporation should pay $5 billion in punitive damages.  Rather than pay it, the corporation spent years delaying payment and appealing the penalty.  Five justices on the Supreme Court ultimately reduced the corporation’s punitive damages award to $500 million.  Then Exxon was able to write off this court-ordered penalty on its tax filing as a mere cost of doing business.

More recently, BP’s reckless spill of more than 130 million gallons of oil ravaged the bayous and businesses of the Gulf Coast.  After years of negotiations, BP recently negotiated a settlement with state and federal prosecutors where it will be required to pay $20 billion, including billions in penalties for its actions.  When BP’s well-paid accountants file its taxes, BP can coolly walk away with a tax deduction for nearly $15 billion of what it is required to pay for its devastating oil spill.  Incredibly, that’s entirely legal.  Under current law, the worst corporate actors enjoy tax deductions specifically for their wrongdoing, leaving hardworking Americans to pick up the bill.

That’s just wrong.  Forcing taxpayers to subsidize corporate misconduct offends our most basic notions of justice and fair play.  Allowing companies to write off the cost of punitive damages is particularly offensive.  Punitive damages are reserved for cases where the court finds that a defendant has done something so egregious that additional penalties are warranted.  They are designed to punish wrongdoers for the reprehensible harm they’ve caused and to deter future bad actors.  By empowering corporations to deduct these damages from their taxes, our tax code winks and nods at future wrongdoers.  It sends them the message that corporate misconduct is somehow business as usual.  Rather than subsidizing corporate misconduct we should be deterring it. 

It’s time to fix the law.  The No Tax Write-offs for Corporate Wrongdoers Act would end this offensive practice with a simple fix to our tax code.  My bill would prohibit corporations from getting tax deductions for the court-ordered punitive damages they pay for their misconduct.  By closing this offensive loophole, my bill would put future bad actors on notice that they will pay punitive damages from their own wallets – not the wallets of middle-class taxpayers.

It’s just common sense.  Closing this tax loophole would save taxpayers more than $400 million over 10 years.  Let’s think about that.  If we do not change the law, our national deficit will swell by nearly half a billion dollars.  If we do not fix our tax code, corporate raiders won’t think twice about pillaging our environment because it’s a tax-deductible behavior.

Vermonters and all Americans deserve better.  The public is tired of seeing corporate giants getting special treatment under the law – and of getting stuck with paying for these reckless misdeeds.  Year in and year out, Congress bickers over extending tax credits that help struggling middle class families.  It has become a perennial fight.  Yet we continuously ignore the need to address these tax loopholes that do nothing but make the wealthy wealthier.  For me, fighting for Vermont families in Washington includes ensuring that the worst corporate actors cannot squeeze deductions out of the havoc they cause, to boost their profits.

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[Patrick Leahy (D) is Vermont’s senior United States senator.]


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