Tax Break

Levin and Conrad try to close $155 billion in tax “loopholes”

February 8, 2012

There’s been a lot of talk about tax loopholes in recent months. Now there’s a bill to go with it.

On Tuesday, two Democratic U.S. senators — Carl Levin and Kent Conrad — piled a laundry list of long-standing proposals into their “Cut Unjustified Tax Loopholes Act.”

The bill would add $155 billion to the country’s coffers over the next 10 years, according to estimates put together by the Joint Committee on Taxation and the Office of Management & Budget on earlier versions of these proposals. That’s more than enough to pay for a whole year of a payroll tax break.

The bill hits two topics about which Levin has been passionate for years: offshore tax havens and corporate stock option tax breaks. The recent indictment of a Swiss bank accused of helping Americans evade tax, and Facebook’s IPO and its $1 billion-plus possible corporate tax break,  have brought both issues into stronger light.

The bill would:

  • cut tax incentives for moving operations and profits offshore
  • tax foreign corporations doing business mainly in the United States as domestic companies
  • force corporations to report key business data on a country-by-country basis
  • require more disclosure of offshore account information
  • end a corporate tax break that allows corporations to claim a stock option tax deduction that is greater than the stock option expense shown on their books

On the last point, Levin argues that the tax deduction an employer enjoys from stock options should match the expense taken on its income statement, and that historical study of IRS data shows the tax deductions usually greatly outstrip the earnings expense. In one year, he found corporate tax deductions were more than $60 billion more than the expense recorded.

He has said:

Due to the stock option loophole, Facebook may not pay any corporate income taxes on its profits for a generation…When profitable corporations can use the stock option tax deduction to pay zero corporate income taxes for years on end, average taxpayers are forced to pick up the tax burden.  It isn’t right, and we can’t afford it.

(Facebook, in a quiet period in advance of its IPO, is making no comment on its tax picture beyond disclosures in its SEC filings.)

In the current environment, the bill’s political chances are slim, Helen Fessenden, an analyst at research firm and consultancy Eurasia Group, told Reuters:

“In terms of this getting into law? Virtually impossible. There’s no way this could be incorporated into any framework that would be acceptable to House Republicans.”

The bill’s best chance, if it gains some support now, would be as part of a more serious discussion about overhauling the tax code after the November 2012 elections, Fessenden said.

This is at least the fifth attempt Levin has made to change the tax accounting for stock options.

The offshore tax haven provisions are taken largely from another bill backed by the two senators. President Barack Obama was a supporter of an earlier version of that legislation when he was a senator.

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