But it also created a loophole that rendered its crackdown meaningless. Exempted were "performance-based" bonuses that surpass that $1 million threshold. A grand new corporate giveaway was born.
Suddenly, CEOs were being slathered with stock options. Companies expensed the giveaway without ever opening their wallets, leaving taxpayers to subsidize caviar compensation plans.
Last year, the five highest-paid CEOs collectively took home $232 million — while their companies received a tidy $81 million in tax breaks.
6. My other home's a yacht. Established in 1913, the mortgage interest deduction is one of the oldest and most sacred breaks in the code. It's meant to encourage home ownership and stabilize communities.
It doesn't really work, since most people will buy homes whether they receive a break or not. Countries like Australia and Canada have similar ownership rates to ours without offering the deduction.
But at least congressmen back in 1913 occasionally tried to do something beneficial to the country. Today's Washington is more interested in exploiting such beneficence. Take the yacht deduction.
The luxury sailing industry was able to buy its way into the mortgage break when Congress officially declared boats as homes. But not just any boat. The rules require they have sleeping quarters, a kitchen, and toilet, leaving just 3 percent of U.S. boat owners to qualify.
"The mortgage deduction was never targeted for that," says Congressman Tim Walz (D-Minnesota). "It was meant to make home ownership more affordable for the middle class."
So Walz wrote the Ending Taxpayer Subsidies for Yachts Act, hoping to bar the über-wealthy from sponging off the mortgage deduction. Once again, Congressman Dave Camp refuses to let it come up for a vote.
That leaves everyday taxpayers to subsidize toys like Microsoft CEO Steve Ballmer's $200 million yacht, which comes equipped with an indoor pool, basketball court, and its own submarine.
"It's a loophole in the tax code that benefits a few people at the very top," says Walz, a sergeant major in the National Guard and former teacher. "I certainly feel if they want to grab their luxury liners, I'm glad they do. And I'm glad we have people making them. I'm just not certain we subsidize that."
5. Big Oil's Cadillac welfare. Last month, Mitt Romney traveled to Iowa, where wind energy has become an economic force, responsible for 7,000 jobs and 20 percent of the state's electricity.
He announced that, as president, he would kill the $3.3 billion in tax incentives that now go to this nascent form of electricity. In Romney's eyes, the industry has had more than enough time to stand on its own two feet.
"He will allow the wind credit to expire, end the stimulus boondoggles, and create a level playing field on which all sources of energy can compete on their merits," Romney spokesman Shawn McCoy told The Des Moines Register.
It's a laughable position. After all, Romney has announced no similar crackdown on a much older and larger welfare queen: Big Oil.
The five largest U.S. oil companies collect a spectacular $20 billion a year in tax breaks. And they'd prefer that wind farms not compete for that lucrative welfare dollar. During this year's presidential race, the industry has paid Romney $3.4 million to ensure wind goes away.
Technically, the oil giveaway is supposed to defray the cost of searching for new sources. But even George W. Bush realized the industry didn't need subsidies back in 2005, when the price of a barrel was at $55. "We don't need incentives to oil and gas companies to explore," he said at the time. "There are plenty of incentives."
These days, the price of a barrel routinely hovers around $100. But the five biggest companies — BP, Chevron, ConocoPhillips, ExxonMobil, and Shell — still get their breaks, despite collective record profits of $137 billion last year.
"The oil industry is doing fine," says Johnson, the University of Texas tax expert. "They don't need or deserve a dime of subsidy. It's all money thrown away to make shareholders richer. The private market will provide any subsidies by increasing the price. It's time to get the government out of the business of special subsidies. It's like Cadillac welfare."
4. A break for shipping your job to China. In April, 750 workers at a Kimberly-Clark paper mill in Everett, Washington, lost their jobs when the company shipped them to a lower-cost facilities overseas.
Steelworkers in Stevens Point, Wisconsin, suffered the same fate. Their mill's owner, Joerns Heathcare, took away 150 jobs last month by moving operations to Mexico.
Another 170 people making auto sensors at a Sensata Technologies plant in Freeport, Illinois, will be out of work by year's end. Their jobs are being carted off to China.