Stock Option Bonanza by Corporations Through Tax Loophole

The lead article in today’s New York Times, “Tax Benefits from Options as Windfall for Businesses,” exposes a tax loophole that will cost the Treasury billions and dilute the stake of other shareholders for major U.S. corporations.

The loophole concerns the current practices regarding stock options. Stock options provide a stake in a company by allowing the purchase of company shares at a set price over a specified period. The options can be cashed in at a later date at a much higher level, but companies can then deduct the difference. This additional deduction is the loophole that can save these companies billions; it has even resulted in companies paying no federal tax as a result.

Today’s revelation comes not long after it was revealed that Congresspersons can engage in insider trading with no penalty, and it provides just one more example of elites profiting from legal benefits typically unavailable to the general population. The only explanation given by companies interviewed about the matter concerns the fact that they can only deduct income/salary for employees up to $1 million per person, so the stock options become a viable alternative.

Meanwhile, since stock options do not cost a company any money, they represent a way of increasing deductions at a later date. One hopes Congress will repeal this loophole if and when they reform the tax code.