Leahy: No Tax Breaks For Corporate Misconduct

U.S. Senator Patrick Leahy Thursday reintroduced legislation to close a tax loophole that allows corporations to write off the punishment they receive for egregious wrongdoing as an “ordinary” business expense.

Punitive damages are imposed rarely, and only on bad actors whose reckless misconduct resulted in extreme consequences – and usually great harm to peoples’ lives.  Such damages are intended to impose a punishment on the wrongdoer so that more responsible decisions will be made in the future.  But enabling corporations to deduct these damages lessens the deterrent effect of that punishment.  Leahy first introduced legislation to close this loophole in 2011.  The bill is cosponsored by Senators Richard Blumenthal (D-Conn.), Jack Reed (D-R.I.), Kirsten Gillibrand (D-N.Y.), and Maggie Hassan (D-N.H.).

Leahy said:  “By giving corporations a deduction specifically for their wrongdoing, our tax code winks and nods at future wrongdoers who know that they can simply write off the damages they owe for the damage they cause.  This is wrong.  Protecting Americans from corporate misconduct is not a political or partisan issue.  It is our job.”

Corporate bad actors have been hit with punitive damages and penalties for causing tragic disasters such as the 1989 Exxon Valdez oil spill which devastated Alaska’s southern coast; the 2010 explosion at Big Branch mine in West Virginia that claimed the lives of 29 miners; and the 2010 Deepwater Horizon rig explosion in the Gulf of Mexico that claimed 11 lives and led to the worst oil spill in U.S. history. But thanks to the existing loophole, these corporations were lawfully able to deduct these punitive damages and penalties as a mere cost of doing business.

The Joint Committee on Taxation has estimated that closing the punitive damages loophole could increase federal revenues by $415 million over 10 years.

Blumenthal said: “A tax write-off for corporate malfeasance defies all reason. The companies that take advantage of this despicable loophole are responsible for devastating environmental disasters, white collar wrongdoing, and even the loss of human life. They should be punished fully for these acts - not given a reprieve by our tax code.”

Reed said: “Fraud and gross negligence are not legitimate business activities, and penalties for these misdeeds should not be tax-deductible business expenses.  Taxpayers should not foot the bill for punitive damages that are designed to hold bad actors accountable for causing serious harm.  Congress needs to close tax loopholes that subsidize corporate wrongdoing.”

“Our top priority in reforming our tax code should be ensuring that hard-working Granite Staters and families across this country have what they need to get ahead and stay ahead, not rewarding big corporations for wrongdoing and misconduct,” Senator Hassan said. “The No Tax Write-Offs for Corporate Wrongdoers Act is a common-sense measure to hold big corporations responsible for misconduct accountable, while putting middle class Granite Staters and Americans first.”

Republican leaders in Congress has been pushing tax cut proposals that disproportionately advantage wealthy corporations over middleclass Americans.  The No Tax Write-Offs for Corporate Wrongdoers Act would hold corporations accountable for their reckless misconduct while simultaneously reducing the deficit.  When the Senate considers tax reform, Leahy intends to propose his legislation as an amendment to the Republican bill.

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