President George H. W. Bush’s January 1992 trip to Tokyo will be forever remembered as the time he vomited in his Japanese host’s lap at a fancy banquet.

What made many Americans more nauseated, though, was the stark contrast between the 12 over-paid American CEOs who accompanied Bush on the trade promotion trip and their modestly compensated, yet high-performing Japanese counterparts. When Bill Clinton entered office a year later, he vowed to do something about skyrocketing CEO pay, through a proposed cap on the tax deductibility of executive compensation. But the reform that ultimately passed Congress was watered down, creating an epic loophole that pushed CEO pay even further into the stratosphere.

A new report I co-authored for the Institute for Policy Studies shows how Clinton’s reform has functioned as a perverse incentive for excessive pay and reckless behavior in the industry where such problems are most dangerous — Wall Street. As income inequality continues to rise, Hillary Clinton must fix her husband’s mistake and close this egregious loophole.

Twenty-four years ago, the American CEOs in the president’s diplomatic entourage made a small fraction of today’s typical payout, just $2 million a year on average, but that was still five times as much as their Japanese counterparts earned. The American public was particularly irate over the multi-million dollar paychecks the leaders of the Big 3 automakers were still pocketing, even as Japanese car imports spiked.

In his 1992 campaign manifesto “Putting People First,” Bill Clinton called for a strict cap on the tax deductibility of executive compensation. The sky would still be the limit for CEO pay levels, but anything above $1 million would not be considered a reasonable business expense worthy of a corporate tax deduction.

It was a solid plan to discourage out-sized paychecks. Too bad it didn’t last.

After their election victory, Clinton’s top economic advisers persuaded the president (over Labor Secretary Robert Reich’s objections) to insert a huge loophole in his proposal. So-called “performance” pay, including stock options and certain bonuses, would be exempted from the deductibility cap. Congress passed this proposal as part of a larger tax bill in 1993. In response, companies began limiting salaries to around $1 million and defining the vast bulk of compensation as a reward for “performance.”

The Troubled Asset Relief Program, the bank bailout passed during the financial crisis, closed the bonus loophole for financial bailout recipients — but only until they repaid their public funds. While homeowners and shareholders were still suffering, the banks were then free once again to dole out massive bonuses and write off the entire cost.

And that’s exactly what they’ve done. Based on company filings with the Securities and Exchange Commission, we found that over the past four years, the top 20 U.S. banks paid out more than $2 billion in fully deductible performance bonuses to their top five executives. At a 35 percent corporate tax rate, this translates into a reduction in their tax bills of more than $725 million, or $1.7 million per executive per year.

The Wall Street CEO who has received the most in such bonuses is John Stumpf of Wells Fargo. Between 2012 and 2015, the bank enjoyed $54 million in tax subsidies related to just this one man’s bonuses.

The advisers who pushed for this bonus loophole claimed it would help ensure “pay for performance” and give a boost to hi-tech start-ups that were trying to lure hot-shot managers with stock-based pay instead of cash. The goal was to align the financial incentives of companies and their top executives, so that if the firm did well, so would the firm’s leaders. In reality, it has not performed well for anyone except the executives. Study after study has shown a total disconnect between pay and performance throughout corporate America. The Wall Street leaders who pocketed huge fortunes as they led their firms — and the national economy — off a cliff were only the most extreme example.

In the years after the crash, the 20 leading U.S. banks’ top executives pocketed nearly $800 million in stock-based “performance” pay— before the value of their firm’s stock had returned to pre-crisis levels. In other words, with shareholders who had held on to their stock still in the red, executives were reaping massive rewards that their banks could then deduct off their taxes.

JPMorgan Chase CEO Jamie Dimon, for example, cashed in $23 million in fully deductible stock options at the peak of the foreclosure crisis in early 2010, when the firm’s stock was trading below 2007 levels. Since then, the bank has racked up more than $28 billion in mortgage and other financial misconduct settlement fees, according to data collected by Good Jobs First.

Instead of boosting performance, the carve-out became a backdoor means for companies to give their executives huge pay packages—while lowering their tax bills. By allowing unlimited deductions for performance pay, the loophole essentially means that the more corporations pay their CEO, the less they pay in taxes. The rest of us get stuck making up the difference. According to the Joint Committee on Taxation, this loophole costs the country about $5 billion in lost revenue every year.

Today, nearly a quarter century after that ill-fated Japan trip, another candidate Clinton is railing against executive excess. But is Hillary Clinton committed to correcting her husband’s CEO pay policy mistake? It’s not yet clear.

In her stump speeches, I’ve found just one reference to this policy debacle. In July 2015, she acknowledged that efforts to tie executive compensation to company performance have often “ended up encouraging some of the same short-term thinking we meant to discourage.”

When she turned to her solutions, she cautiously said we need to “reform the performance-based tax deductions for top executives.” This could mean many things, from ending the bonus loophole to merely tinkering with the definition of what counts as “performance-based.”

Donald Trump’s plans to close corporate tax loopholes have been skimpy on details. But in 2014, another prominent Republican, then House Ways and Means Chair Dave Camp, proposed the elimination of this bonus loophole in his tax reform plan, saying it was time to “stop subsidies for excessive compensation.”

Bill Clinton had the advantage of a Democratic-controlled Congress when he pushed through the original pay reform in 1993. But even if Republicans control one or more houses in the next session, bipartisan support to fix this policy mistake should not be out of the question. According to a 2016 Stanford Business School survey, 70 percent of Americans, including 54 percent of Republicans, now believe CEO pay is a problem.

The financial crisis gave us a hard lesson: compensation practices that encourage reckless, short-term behavior threaten everyone, whether you vote blue or red.

Getting rid of the bonus loophole won’t be enough to fix this dangerous executive pay system. But it would show we know more about these threats today than we did in 1992.

Sarah Anderson directs the Global Economy Project and co-edits Inequality.org at the Institute for Policy Studies.

Authors: