CT Politics

Connecticut Politics

Senators say Twitter could reap $154 million tax break

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Sens. Carl Levin and John McCain take aim at Silicon Valley tax breaks

Sens. Carl Levin and John McCain take aim at Silicon Valley tax breaks

Sens. Carl Levin (D-MI) and John McCain (R-AZ) fingered Twitter as the latest Silicon Valley poster child of corporate tax avoidance, in this case through stock options that are likely to be granted when the high-flying social media company makes its IPO debut Thursday.

Levin, chair of the Senate Permanent Subcommittee on Investigations, and McCain, the ranking Republican, issued a joint press release saying Twitter “will be able to take an estimated $154 million tax deduction for a stock option compensation expense which its own books show cost Twitter only $7 million.”

They said the tax deduction is 20 times larger than the actual business expense. Stock options have been fiercely guarded in past years by Silicon Valley and its representatives in Congress (including Anna Eshoo, D-Palo Alto, Sen. Barbara Boxer, D-Calif.) as a necessary incentive for innovation and entrepreneurship. Efforts to scale back stock options in the wake of the Enron scandal were successfully blocked.

Levin and McCain said Internal Revenue Service data provided to the committee showed that between 2004 and 2010, the last year for which data exists, corporate deductions for stock options were tens of billions of dollars greater than actual expenses, totaling $20 billion in 2010 alone. And only a small fraction of all corporations used the stock option deduction. These are concentrated in the tech industry.

The letter followed a report Tuesday by Citizens for Tax Justice, a union-funded think tank, that showed just 12 technology companies, including Twitter, Facebook and LinkedIn, “stand to eliminate all income taxes on the next $11 billion they earn,” amounting to $4 billion in tax breaks. Because Twitter has not yet reported a profitable year, the report said it is impossible to estimate how many years it can use the stock option loophole to avoid taxes.

Levin, who will not seek re-election next year, has used his last years in office to expose Silicon Valley tax dodges, including widespread use of overseas tax havens by Apple, Hewlett Packard and others. See here and here and here and here and here.

Stock options allow a company to award compensation to executives and employees by granting an option to buy the company’s stock at a favorable price in the future. Stock options have been criticized by former Fed chairman Alan Greenspan and former Securities and Exchange Commission chairman William Donaldson. As we explained way back in 2004, “Enormous options-fueled executive pay packages, reaching hundreds of millions of dollars, became a source of scandal with the (tech) bubble’s collapse and the ensuing bankruptcies of Enron and other large corporations due to accounting malfeasance.”

Categories: congress, Tax policy, Twitter
Carolyn Lochhead

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