Washington, DC – U.S. Senators Sheldon Whitehouse (D-RI) and JD Vance (R-OH) today introduced the Stop Subsidizing Giant Mergers Act, legislation to end tax-free mergers and taxpayer subsidies for acquisitions that consolidate corporate power.
“Record numbers of giant corporate mergers have created an anti-competitive economic landscape. The families who get stuck paying higher prices as a result of these mega-mergers should not also have to foot the tax bill for them,” said Whitehouse. “Our bipartisan bill will end a massive tax giveaway for giant corporate mergers and get our government out of the business of subsidizing corporate consolidation.”
“Massive corporate mergers rarely produce their promised benefits but often leave American workers and families behind. It’s past time to close the unfair loopholes that allow these deals to escape tax liability. This commonsense, bipartisan legislation will ensure our nation’s largest corporations are held to a fair standard while preserving protections for small businesses to grow,” said Vance.
The volume of large mergers reported to federal antitrust agencies has nearly doubled over the past decade. The vast majority of such mergers fail to achieve their expected value, and when they do generate greater profits, it is more likely attributable to concentrated market power than improved efficiency. Everyday Americans must bear the costs of this corporate consolidation—as much as $5,000 each year for the typical household, according to one study.
When one corporation is sold to or merges with another, the acquiring firm typically pays tax on the appreciated gain of stocks and/or assets held by the target firm. However, the arcane tax code contains a major exception for certain types of mergers: if a corporate reorganization is structured so that the acquiring firm is exchanging stock, then the appreciation in value of the target firm’s stock and/or assets may be fully tax exempt. In other words, neither the corporation nor its shareholders may owe tax on the appreciation in value at the time of sale. While the tax is deferred rather than forgiven, in practice the corporation and its shareholders may escape tax forever.
This tax-free structure is a popular way for giant corporations to skirt tax responsibilities. Since 2007, up to 40 percent of the aggregate value of all U.S. mergers have been structured in this way. In 2021, over half of mergers over $1 billion were tax-free. Examples of large mergers structured fully or partially tax-free include:
- Facebook’s $19 billion acquisition of WhatsApp in 2014.
- AT&T’s $85 billion acquisition of Time Warner in 2018. In 2022, AT&T spun off Warner Media, which then merged with Discovery in a $43 billion deal that will also be tax-free.
- Canadian Pacific Railway’s $31 billion acquisition of Kansas City Southern.
- Capital One’s $35 billion acquisition of Discover.
The Stop Subsidizing Giant Mergers Act would end this tax-free treatment for corporate mergers and acquisitions involving firms with combined average annual gross receipts exceeding $500 million during the prior three years. The legislation makes exceptions for mergers involving a small business, and corporations that are undergoing a purely internal reorganization would still be able to so without incurring a tax obligation.
“This legislation is a no-brainer, as it’s pretty obvious taxpayers shouldn’t subsidize corporate mergers when America is in the midst of a monopoly crisis. There’s really not much more to say, Congress should pass this one immediately,” said Matt Stoller, Research Director of the American Economic Liberties Project, which endorses the bill.
Text of the legislation is available here.
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