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Microsoft and Cisco Don't Pay Taxes?
Perseus_Moebius writes "Neither Cisco nor Microsoft paid a single dollar in federal taxes last year! if there was any doubt we have a federal government run by corporations this should end it. read the article on SF Gate. " Pretty scary. Apparently they get to write off stock options.
...to all you liberals out there who will complain bitterly about such an injustice....let it be known that the emplyees who excercised those options paid through the nose. So its not like the money wasn't taxed.
I'm still working on a clever footer.
This is just the tip of the iceberg. see Ralph Nader for more.
You just now figured this out?
Many corporations pay very little in income tax.
This case, in particular, is a very bad example of corporate "welfare." Cisco enriched its employees by about 7 billion dollars in exchange for 1 billion and change in tax savings. This 7 billion dollars is not "free" money that came out of no where either; every additional share dillutes original shareholder's piece of the pie. It represents a net transfer of wealth from the bigger shareholders and institutional investors to the employees. Frankly, everything else being equal, they'd do better taking that tax on without that writeoff, and skipping stock options entirely.
Oh come on. I'm no fan of corporate percs, but it's the SHAREHOLDER that pays the bulk of these costs, not other tax payers. Let the shareholder's deal with it. As if Gates' reason for existence is to live off of percs; he doesn't need them, they're a drop in the bucket for him.
Ahem, Funny you should bring that up. You do know that the "rich" pay most of the tax burden, right? The top 1% pays roughly 32%, the top 5% roughly 50%...and the bottom 50% only pays something like 5%. So let's be clear here, there is _no_ doubt that the rich plenty of taxes in actuality. Insofar as Bush goes, although I don't agree with his income tax proposals (not at this point anyways), it's hardly a transfer to the rich. Any tax cut across the board, is going to disproportionately benefit the "rich", because they already are bearing most of the load. Furthermore, the marginal tax rates for the rich have actually _increased_ since Clinton took office, this is because a number of writeoffs and such were removed by Clinton and company.
In defence of Bush's tax cuts, his reducing taxes hardly means you'll bear a bigger burden than you already do. Did you know that we're paying more taxes as a percentage of GDP than we did even in WWII? Why would we possibly need that much? I don't think we do, at least if we get sensible. [I disagree with him for other reasons]
Uh no. I actually stand a pretty good chance. Of course, i'm willing to do more than bitch and demand some sort of personal welfare....
There are actually many different ways, I suggest you read your statistics to account for the rapid rise in them. In any event, one is major way is to start a business, which I can tell, you're so clearly opposed to. Not every businessman or multimillionaire is a elitist or sinister as you would have the slashdot's juniors believe.
oh well. fight flame with flame. g'night
FYI, Nader is worth at least 3 million now. Did you know that? If he is so high principled, why hasn't he transferred all that money, in accordance with his platform (i.e., a progressive tax rate of 100% at 10x minimum wage...well he's well over), to a charity or something?
Incorporate Family.com. Give stock options to Chief Wife Officer, Chief Kid Officer 1 and Chief Kid Officer 2. Heck I'll even give options to Individual Contributors dog, cat and goldfish. I'm sure the car and house would want some too. Did I leave anyone out? How about Chief Dead Relative, late Uncle Bill.
FYI, Nader gives the vast majority of his income to charities. Or, did you think that a man with the name recognition of Nader, who runs several big non-profits (I live near one--the building alone, right off of Connecticut Avenue in a neighborhood which has gone posh since Nader's folks moved in, must be worth twice Nader's personal worth), could only earn that much after all these years?
Fact is, $3 million is small change in the political world. The Democrats raise three times that at a single fundraising dinner. The head of a gay Republican lobbyist group--surely a fairly small constituency--just paid $2 million cash out of pocket for his new house, so you'd figure he's worth substantially more. Nader has made a million dozens of times over, and has given all but a small fraction of it to charity.
So, don't try to impugn him, when it's you who needs impugning. I'm not even a Nader supporter--I usually vote Republican, because I think it's the federal government's job to stay out of everyone's way and only regulate what the Constitution provides for--but I'm tired of people who malign those who give most of their income to charity, calling them hypocrites for keeping anything for themselves and their families, while they themselves are usually resource hogs who give away only a tiny percentage of what they get.
Corporations have been granted, through legal fictions instituted within the last century and a half, the rights of individuals. With those rights they were also supposed to have all the responsibilities of individuals. However, they no longer live up to their responsibilities, and in so doing shift them back on the rest of us. For example, corporations are supposed to pay federal taxes, just as an individual would; but few do, because most corporations can afford to hire lobbyists to make loopholes and attorneys to exploit them--yet few individuals can. So, the tax burden gets shifted to the individuals, when corporations aren't paying their fair percentage.
The corporations buy loopholes from the government, and we should put a stop to it. There is more pressure for a viable third party--a populist party--now than there's been for a century. The day is coming when there will be accountability, and when corporations suddenly start having to pay the $400 million here and $120 million there that they should have been paying all along, they'll likely collapse from not being accustomed to it. I look forward to that day...
"The more corrupt the state, the more numerous the laws."--Tacitus, *The Annals*
If you don't agree with this, and you were a shareholder of Microsoft as of September 8, 2000, be sure to vote NO on proposal 2: To approve the adoption of the 2001 Stock Plan. I need to read over the details before I decide how to vote my shares. Just think, if every one of us would just put our money where our mouth was we could have a hostile takeover of Microsoft, submit a shareholder proposal, and GPL the product. Or would we do the same thing if it was our money on the line? [Disclaimer and Disclosure - author of this post is a shareholder of Microsoft Corporation]
ok then your [sic] infringing on my copyright! Could you as [sic] me next time before STEALING my comments for your own?
Except for the fact that the Supreme Court ruled in 1886 (Santa Clara County v. Southern Pacific RR Company) that corporations had the same legal status as people under the 14th amendment. "That's nice," you might say, "but that doesn't mean that the government should exert the same financial control over corporations as people."
Well then, why do corporations get welfare? Each year the federal government hands out more money to large companies than it does to individuals. Free market economy? It doesn't exist. No matter what fiscal libertarians may tell you (I consider myself a social libertarian, btw) it simply doesn't exist because there is no legal playing field.
So please, get your facts straight before attempting to act condescending towards your readers. Someone may know what they're talking about and make you look stupid.
Disclaimer: The above comment is not the be-all and end-all of US tax laws. If anyone has more info, feel free to correct me. Just don't spout coporate propaganda or catchphrases unless you have facts (laws, court cases, etc) to back it up.
-jdm
yes, it is a loophole, but it is not like the money completely disappeared.
and you'd be right.
Look, the US is strongly biased in favor of corporate welfare, and tech firms are the worst offenders. Major corporations even have special loopholes written for them by Congress and the Senate, and then write off the vacations they give said members as a business expense.
Every time Bill Gates goes on a trip to China to see the Great Wall and play bridge with his buds, the entire trip is a tax write-off for Microsoft, under the guise of "doing business".
When I was a kid, corporations paid three-quarters of the income taxes. Now, people pay almost all of the income taxes. And, it's a scam for the rich, because we get to set up trusts to hide our income legally, and if you elect George Bush, we'll get an even bigger slice of the pie.
And face it, no matter how innovative you may think you are, you're quite unlikely to become a multi-millionaire. There are very few ways to do it - one is to save more than 10 percent of your income (I save 20 percent, much in tax-deferred or tax-exempt accounts, the rest in tax-efficient single stock purchases), another is to steal it (Bill G), a third is to inherit it (most inheritors waste it all, because they spend more than they save).
--- Will in Seattle - What are you doing to fight the War?
It is scary that the largest corporation in the United States is able to get away with not paying federal taxes while you and I, mere citizens, have to pay taxes every year.
From the article,
Cisco Systems, the second-most valuable company in America, paid no federal income taxes for its latest fiscal year thanks to a little-known corporate tax break on employee stock options.
Microsoft, which ranks No. 4 in market value, did not pay any federal taxes either, it seems.
Little-known, maybe to the typical man on the street, but *well known* to pretty much any tech startup or tech corporation of any size.
The tax code in the USA is more complex than the Win2000 codebase, and has twice as many bugs. I have lost any hope of a simplified tax code, because representatives cut out special tax incentives and benefits for their constituents. In essence, it's their job to make the tax code more complicated, favoring the represented people AND corporations.
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Even though the corp itself didn't pay taxes, the options themselves were taxed at the time of sale at the rate of 50% (or what ever the percent of thecurret capital gains tax). For once it seems like a fair deal as a tax was paid only one time instead of the normal 2 or 3 times that this country has a way of getting.
This is the fundamental problem with the way that options are currently treated under US tax law. The options obviously have value (otherwise Bob would not care about them,) and therefore there is an immediate cost (i.e. loss) for BigCo.
The options' value can be computed at the time they are granted. While the restrictions on the options may make Black-Scholes pricing infeasible, the price is still determinable based on a) the strike/spot of the options, b) the volatility of the stock, c) interest rates, and d) time to expiration of the option.
If the tax system was rational, Bob would pay taxes each year on the gain in the value of his options, and BigCo would show a corresponding loss equal to this gain. Shareholders would therefore always have an honest picture of BigCo's liabilties and real earnings.
Unfortunately, such a scheme would tend to bankrupt employees of successful companies: Bob would be unable to pay his tax bill because his earnings are in the form of option price gains that he cannot realize.
To make the system equitable, BigCo must either allow Bob to sell enough of his options to meet the tax liability on the remaining options, or alternatively, give him a restricted loan to cover the tax liability. Either of these produce the effect of giving an accurate picture of BigCo's finanacies to the shareholders, and at the same time allowing BigCo to reward Bob for long-term work and loyalty.
I see no issue with this. If someone can give me a good reason why we should eliminate an INCENTIVE for companies to give employees a benefit, please let me know.
Frankly, I would applaud any company that went to the trouble to give the money they would have paid to uncle sam to thier employees. Ultimately, Uncle Sam is going to get more out of it when the employees flip their options than from the company itself. The employees will get money they never would have seen, and the company will have better morale for it. Win-win-win.
So Uncle Sam doesn't lose, the employees don't lose, where is the problem other than the words 'Microsoft' appearing in an article.
The employees who exercise the stock options have to pay taxes on the income from them, meaning that while Cisco the corporation didn't pay income tax, the employees paid taxes on the $7b it gave out last year.
If the figures from the article translate back to the individual employees (which they probably do), the govt. actually got $1b more than what it would have gotten if Cisco had paid taxes on their income.
I'm no fan of trickle-down economics, but which would you rather have:
1) $1b paid by Cisco, employees get zip
2) $7b in stock options "paid" out by Cisco, $2b in taxes paid to the govt. Employees wind up with $5b in their pockets.
-- Ever notice that fast-burning fuse looks exactly the same as slow-burning fuse? I didn't... (Edgar Montrose)
Stop and think a moment:
Every time a corporation pays taxes on income, a stockholder is taxed twice. Corporations don't make money. The people who own a corporation, i.e. stockholders, make money. Stockholders pay income taxes on corporate dividends and capital gains on appreciated equity. So, if a company has to pay taxes on income and then the shareholders pay taxes on the divendends realized from that income, it just means that the same income stream is taxed twice.
So, please stop. Corporations are not people, the shareholders are and we already pay lots of taxes.
Take John Doe, a wealthy manager who has stock in
AT&T. He pays the corporate income tax on the dividents and the income tax on his large salary.
Take Jane Doe, a little old lady who has stock in AT&T. She pays the corporate income tax on her dividents, and uses the rest to buy knitting supplies.
Why do they pay the same rate? Because demagoguish
politicians have fooled Americans to thinking that corporations pay taxes. That is a fiction.
Corporations don't pay taxes, shareholders do.
And not all shareholders are rich.
The corporate income tax should not exist.
A progressive individual income tax is far more suited.
the motley fool had a good article on how MS cooks their books. you can find it here: http://www.fool.com/portfolios/rulemaker/2000/rule maker000217.htm
putting the 'B' in LGBTQ+
The employees who get the stock options pay taxes on their profits. It's a cost to the company. If the companies didn't get to take a deduction, it would be double taxation.
Consider this: Say you work at Lego. Because you're an employee, you can buy a Mindstorms kit for cost (say, $50) rather than the $200 list price. Should Lego have to pay taxes on the $150 profit they didn't make from you?
Similarly, if Microsoft has a bunch of stock that's worth $100/share, but they've previously agreed you could buy 1,000 shares for $10 each, they're losing $90,000. You, on the other hand, have just made $90,000. So who should pay taxes on that $90k? And since MS just gave you a portion of the company for 10% of its value, shouldn't they be able to deduct that loss?
Mind you, IANACPA...
Stupid people will be persecuted to the fullest extent allowed by law.
BigCo gives a Bob, an employee, stock options at $5, the current price. Bob is not taxed for this, and BigCo doesn't put the transaction on its balance sheet, because there was no real value traded. BigCo gave Bob the ability to buy shares at $5, which is what he could buy them in the market for, anyway. Hence, no income for Bob, no loss for BigCo.
Five years later, BigCo has had an enormous run-up in its stock price, and those options are now worth $50. Bob excercises his options, buying 100 shares of BigCo stock at $5 per share, or a total cost of $500. But those shares are worth $50 each, or $5000. A nice profit for Bob, to say the least; he can now sell the shares at their full market value.
According to both the IRS and standard accounting practices, this gets counted as a taxable gain for Bob (that $45 difference gets hit as income). Similarly, if BigCo had just hung onto those shares, they could've sold them themselves for $50, so BigCo gets with with a $45/share loss. A company's profit is the total revenue in minus total money lost, and that loss counts. If you end up with a total number that is negative, you don't pay taxes, since taxes are on net profits.
So, the article's contention that it becomes a "tax deduction" for the company is a bit simple - it becomes a loss for the company. This is why so many .coms like to trumpet their pro forma numbers - those usually exclude "non-cash charges" such as the non-cash loss they are forced by accounting rules to take on the hefty stock compensation they give their employees. That non-cash loss is why you can see statements like "fooco.com has lost $278 million since inception," but, if you look back through their announcements, you'll find out fooco.com has only raised $75 million. The rest is a "non-cash loss," and, frankly, given that fooco.com is losing money, anyway and not going to pay taxes for a long time, they'd probably rather just get rid of the current system. In today's media world of people looking for "dot bombs," fooco.com is likely to report a $.75/share loss (including non-cash charges) and a $.25/share pro forma loss, with analyst excpectations of a $.50/share (pro forma) loss, and have the press complain that they missed their numbers!
The fundamental logic is simple - Bob was compensated by BigCo. Bob has to pay taxes on his compensation. It doesn't make any more sense to have BigCo pay taxes on the lost money in that transaction that it would for BigCo to pay taxes on the salary it has to pay Bob.
In a sense, this article is a troll; it's very shoddily researched journalism, and extremely sensationalist. Of course tax deductions exist; I depend on those, and I would HOPE that corporations take advantage of them just like I do (and this one is even a GOOD deduction).
I've also seen and agreed with the arguments that corporate taxes are a demagogic sham in the first place; the money should be honestly taxed from individuals, so that we can keep track of how high our taxes really are, and be able to vote our outrage when appropriate.
However, there is some point in the outrage over how little corporations pay. The fundamental problem is that majorities vote, but a minority pays taxes. Fewer and fewer americans pay taxes, and they're the richest part of America. We're reaching the point again where we have taxation without representation -- but this time we're trying to do that to people who have real financial power, and IT WON'T WORK.
People with financial power have the means to work against those taxes; they start by lobbying for tons of loopholes, but pretty soon they're going to insist on being given political power proportionate to their tax burden, and pretty soon they will wield all of the political power in addition to all of their financial power.
This is assuming a complete lack of bad motives, of course. If you're the conspiracy theorist type, mix in those; you'll find that the result isn't much worse.
So we've encouraged poor people to trade their franchise tomorrow for a few dollars less in taxes today. Think about it. Does a progressive tax really sound so good now?
-Billy
But legally, they are a separate entity.
now consider the flip side of the coin if you were to start your own business, and decide to incorporate, depending on what state you are in.... but probably around $400, and you have yourself a corporation. The next step is to raise funds... assuming the you have chartered for X number of shares of your stock, that becomes the corporation's liability. If this corporation of yours go bankrupt, what happens? Are you liable to repay any outstanding debts? No. Because the Corporation was in debt. So if the corporation is what goes bankrupt, and not the stockholders (equity holders, which is similar to a sole proprietor or partnerships who are liable for any outstanding debt that their company has), then shouldn't they get taxed also? A lot of people just talk about the double-taxation problem of corporations, but never seem to mention the benefits a corporation has. just my $0.02