Tax Byte

Few proposals have been made to change tax-free reorganizations in the past century, but today, a Democrat and a Republican have combined forces to attempt exactly that.

This morning (3/21), Sen. Sheldon Whitehouse (D., R.I) and Sen. J.D. Vance (R., OH) introduced new legislation aimed at transforming the tax implications of big mergers by revising the corporate tax code. The Stop Subsidizing Giant Mergers Act is described in a statement from the senators as “ending a wasteful subsidy for mergers where combined average annual revenues exceed $500 million.”

The bipartisan bill sets its sights on companies’ ability to complete tax-free mergers. Shareholders who receive stock from these deals would now owe capital-gains taxes immediately under this bill, rather than deferring those taxes until they sell their shares. Whitehouse and Vance cited several recent examples of “mega-mergers” structured partially or fully tax-free, including Canadian Pacific Railway’s $31 billion acquisition of Kansas City Southern and Capital One’s $35 billion acquisition of Discover.

If this proposal were to be implemented as it stands, all-stock mergers would be required to pay taxes on the difference between the value of their shares when acquired and the value received in the transaction.

In the press release from Whitehouse’s staff, Whitehouse says he’s hoping this bill will “get our government out of the business of subsidizing corporate consolidation.” Vance’s goal is to “close the unfair loopholes that allow these deals to escape tax liability,” arguing that the promised benefits of corporate mergers rarely materialize and instead end up leaving American workers and families behind.

While this bill could have significant consequences for high-dollar M&A deals, The Wall Street Journal asserts that the likelihood of this bill becoming law is pretty slim, considering that Congress is still struggling to pass the strongly-backed bipartisan Tax Relief for American Families and Workers Act of 2024.