Friday, February 26, 2010

Please vote for my latest budget proposal


Brent Fullard @ 2/25/2010 10:50:41 PM

Eliminate the tax treatment of executive stock options as capital gains (since no capital is at risk) and taxed at half the rate of income from employment (which is what these stock options gains really are), and commence taxing these stock option gains at full rates of taxation.

This will raise tax revenue, increase tax fairness, and end the subsidizing of compensation schemes that were at the root cause of the global financial meltdown.

The Global Financial Meltdown was caused by two things: (1) Lack of regulation that allowed CEOs to “go places” that they shouldn’t, and (2) compensation schemes that incentivized certain minded CEOs to “go there”

Although it IS the role of government to establish regulatory frameworks it IS NOT the role of government to determine compensation in the private sector, However there is one measure that is incumbent on both the US government and the Canadian governments to abolish as part of a thoughtful response to the Global Financial Meltdown and to ensure that it does not happen again, which is to abolish the capital gains treatment of Executive Stock Options.

These people have no money at risk and yet are being taxed (at half the rate of employment income) as if they did, via the capital gains treatment that they are arbitrarily accorded. It is Executive Stock Options and the lopsided risk/reward outcome that they provide that forms the large bulk of what these CEOs are paid. These CEOs behaviour should be expected to derive from how they are paid, and it often does as they take risks that shareholders left to their own devices would not (eg decision by CEO of Manulife not to hedge large book of market exposure caused by selling synthetic investment products), however tax policy should not be part of the system that rewards and induces this type of bad behaviour. Taxpayers should not, in effect, be ubnderwriting compensation schemes that are at the heart of inducing bad societal outcomes, like the Global Financial Meltdown.

1 comment:

Dr Mike said...

Got er done.

Dr Mike