Statements on Introduced Bills and Joint Resolutionsby Senator Patrick J. Leahy
Posted on 2015-01-13
S. 169. A bill to amend the Internal Revenue Code of 1986 to disallow
any deduction for punitive damages, and for other purposes; to the
Committee on Finance.
Mr. LEAHY. Mr. President, today I am introducing legislation that will close a tax loophole that allows companies to write off the punishment they receive for corporate wrongdoing. Under current law, a corporation or individual business owner may deduct the cost of court- ordered punitive damages paid to victims as an ``ordinary'' business expense. For the victims of extreme corporate misconduct, there is nothing ordinary about this. It is simply wrong. This tax loophole allows corporations to wreak havoc and then write it off as a cost of doing business. That undermines the whole point of punitive damages.
Punitive damage awards are designed to punish the wrongdoers and to correct dangerous or unfair practices. These awards are reserved for the most extreme and harmful misconduct. Sadly, our country's history is replete with examples of serious corporate misconduct that resulted in injury and death to American citizens, but through our civil justice system and the thoughtful deliberations of our Nations' juries, this misconduct is not only punishable by assessing punitive damages, it has led to broad changes to improve the safety and security of American consumers. Unfortunately, our current tax laws shield the worst corporate misconduct. The No Tax Write-Offs for Corporate Wrongdoers Act would change that by making a simple fix to our tax code.
In 2010, the Deepwater Horizon drilling rig exploded and 11 Americans were killed in the worst oil spill in American history. That same year, an explosion in the Upper Big Branch Mine in West Virginia claimed the lives of 29 miners. In 2009 and 2010, Toyota recalled more than 10 million vehicles because of a faulty acceleration system that has been linked to at least 31 accidents and 12 deaths, and recently admitted to misleading the public about these dangers. Let us also not forget Exxon's misconduct in 1989, which led to an ecological and human disaster that affects Alaskans even today. Vermonters and all Americans deserve to have companies such as these held accountable for their actions. Why should hard-working taxpayers subsidize corporations who deserve to be punished? In 1994, a jury awarded $5 billion in punitive damages against Exxon for its actions which caused the Valdez spill that devastated an entire region, the livelihoods of its people, and destroyed a way of life. The role of the jury is enshrined in our Constitution, and nothing is more fundamental to the American justice system than our trust in the judgment of those who serve on them. Rather than accept this reality, Exxon paid its cadre of lawyers to fight the jury's measure of accountability all the way to the Supreme Court. In 2008, after 14 years of appeals, an activist majority on the Court invented a novel rule and held that in maritime cases, punitive damage awards could not exceed twice the amount of compensatory damages, reducing Exxon's punitive damages to $500 million. Adding insult to injury to the victims of the oil spill, Exxon was then able to use the federal tax code to write-off the punitive damages as an ``ordinary'' business expense. This is not how the system should work and it is long past time for Congress to fix it.
I have previously supported legislation by Senator Whitehouse to overturn the Supreme Court's decision in Exxon, and I am disappointed that not a single Republican joined this commonsense effort. If we cannot get bipartisan support to ensure corporations pay the highest possible price for actions that cause serious harm to health and public safety, I hope we can at least agree that American taxpayers should not have to subsidize their misconduct once a jury has determined they should be punished.
The Obama administration requested eliminating this tax deduction in its 2014 budget proposal. The Joint Committee on Taxation has estimated that ending this deduction loophole will result in increased revenues of $355 million over 10 years. Members who have devoted so much of their focus to reducing the Federal deficit should support my legislation. Anyone who cares about protecting consumers should agree that extreme corporate misconduct should not be treated in our tax code simply as a cost of doing business.
Right now, the new Republican majority in Congress is pushing legislation to approve the Keystone XL Pipeline. Despite being billed as the safest pipeline in history, the existing Keystone pipeline has spilled 12 times in its first year of operation. This has a familiar ring: Before the Valdez spill in Alaska, Exxon executives told us their oil tankers were safe. I do not support Congress bypassing the environmental appeal process to fast-track further construction of the Keystone pipeline, which poses considerable safety and environmental risks. But anyone who does want this pipeline should at a minimum consider the communities and families who would be affected by its construction, and in the event of a spill, they should make sure taxpayers are not subsidizing the damage. This speaks to our basic notions of justice and fair play.
I hope all Senators will join me to end tax write-offs for corporate wrongdoers. When companies can write off a [[Page S205]] significant portion of the financial impact of punitive damages, the incentives in our justice system that promote responsible business practices lose their force. Corporate misconduct should no longer be treated as a cost of doing business.
______ By Mr. CORNYN (for himself, Ms. Klobuchar, Mr. Wyden, Mr. Kirk, Mr. Hatch, Mr. Graham, Mr. Coons, Mr. Udall, Mr. Coats, Mr. Crapo, Mr. Hoeven, Mr. Casey, and Mrs. Feinstein): S. 178. A bill to provide justice for the victims of trafficking; to the Committee on the Judiciary.