Super-sized Tax Deductions on Stock Options

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Twitter’s IPO last week focused some bipartisan attention on provisions in the tax code that are unfair, costly to the federal Treasury and ripe for reform.

Sen. Carl Levin (D-Mich.) and Sen. John McCain (R-Ariz.), the chairman and ranking member of the Senate’s Permanent Subcommittee on Investigations, said their panel had scrutinized a number of special-interest loopholes that should be eliminated.

One of these allows companies to reap large tax benefits by reporting stock option compensation expenses one way in their financial statements and a different way to the government for tax purposes.

The result: Twitter and other companies can receive tax deductions that are several times larger than the related expenses shown on the corporate books. The Joint Committee on Taxation estimates that ending this tax break would raise $23 billion a year for the Treasury.

“Given the deficit and damaging sequester cuts facing this country,” McCain and Levin said, “this corporate stock option tax deduction is the kind of tax loophole that ought to be closed.”

Meanwhile, Senate Democrats were reported to have put together a list of a dozen tax breaks that they believe could be eliminated, including those for CEO stock benefits. Politico said other tax breaks on the list range from deductions that corporations take for moving operations overseas to deductions for individuals who borrow to buy vacation homes and yachts.

External links:
Levin-McCain Statement on Stock Option Tax Deductions
Senate Democrats Start Wish List for Nixing Tax Breaks

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