A study has found that the top 20 banks in the U.S. paid out $2 billion in fully deductible performance bonuses to their top 5 executives between 2012 and 2015. At a 35 percent corporate tax rate, this amounted to a taxpayer subsidy of more than $725 million.

The report published by left-wing think tank Institute for Policy Studies claims that financial institutions took advantage of a loophole in the 1993 Clinton administration reform that caps tax deductibility of employee compensation at $1 million by giving out stock options and cash bonuses as performance-based pay to their executives. Activist Robert Reich, who was the Secretary of Labor at the time, said on his official Facebook page, “Secretary of the Treasury (Lloyd Bentsen) and head of the National Economic Council (Bob Rubin) insisted pay should be deductible if linked to corporate performance. I argued against their loophole. They outvoted me. Their recommendation went to Clinton, and the rest is history. From then on, executive stock bonuses soared.” (See also CEO Pay Packages at Top 5 U.S. Banks)

After the 2008 financial crisis and the government bailout that followed, banks were not allowed to disburse executive compensations of the size that "encouraged excessive risk" and the tax deductibility cap was lowered to $500,000 per executive without exception. Once the banks repaid the borrowed funds, they were able to take advantage the tax loophole once again and it showed. The share of vested stock that is performance-based rose from 5 percent in 2010 to 50 percent in 2015.

The report argues that while shareholders were still hurting, executives at the top 20 banks were pocketing big rewards. Between 2010 and 2015, $800 million of stock-based performance pay was granted to the top executives at the 20 leading banks before the value of the company stock had returned to pre-crisis levels.

The top 5 banks that received the largest taxpayer subsidies between 2012 and 2015, owing to bonuses granted to their top 5 executives, are Wells Fargo (WFC), American Express (AXP), Goldman Sachs (GS), Discover Financial (DFS) and PNC Financial (PNC).

Bills to amend the tax code and close this loophole have been introduced in Congress. The Stop Subsidizing Multimillion Dollar Corporate Bonuses Act and The Income Equity Act of 2015 were both assigned to congressional committees last year. The website GovTrack.us says both these bills have a zero chance of being enacted. (See also, Clinton vs. Trump: What Happens to Your Income Taxes?)