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A new report by Citizens for Tax Justice (CTJ) found that 315 Fortune 500 companies have managed to avoid $64.6 billion in taxes over the past five years due to a single tax provision known as the stock option loophole.
The loophole allows companies to deduct the market value of stock options provided to their employees, even though the provision of these stock options comes at no real expense to the company. In other words, issuing stock options allows companies to take a huge tax deduction, and thus significantly lowering their taxes, without expending any resources. This practice encourages companies to make already excessive executive compensation packages even larger.
Over the past few years, Facebook has become the poster child of the stock option loophole for its extensive use of the break. CTJ’s new report affirms this status, finding that the company received $5.7 billion in tax breaks over the past five years from this singular loophole. To put this in perspective, the stock option loophole allowed the company to slash its total federal and state incomes taxes by 70 percent and even pay nothing in taxes in 2012.
Facebook is no means alone in receiving a huge tax break from the loophole. Apple and Google received $4.7 billion and $1.9 billion respectively in tax savings from the loophole. While tech companies are some of the biggest recipients of the breaks, many financial firms take huge advantage of the break as well. For example, Goldman Sachs, JP Morgan and Wells Fargo received $1.8 billion, $1.7 billion and $1.5 billion in breaks from the loophole.
At a time when the average compensation for a company CEO is 335 times the compensation of the average worker, we need a tax code that curbs income inequality rather than making it worse. Eliminating the stock option loophole by no longer allowing companies to deduct stock options for which they pay no expense would raise much needed revenue and represent a positive step in countering income inequality.