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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.
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
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)
What a load of rubbish. Without government, you'd have NO freedoms. Your existence would be defined by the one stronger than you. Government enforces the law. The law is defined by government. That can be a good thing or bad thing. In some countries where government has defined laws where its citizens have no freedoms, obviously er duh they don't.
Fortunately for many democratic countries, their governments have been set up to give its citizens freedoms which they deserve, back it up with law, and back that up with more law (common law, constitution, whatever) that says you can't take those freedoms away...
If you want lack of government meddling in your lives, I suggest you move to a country that has horrible ineffective government, like Columbia. Then your "freedoms" would be defined by the closest drug lord...
Also, guess what, government takes money to run it, and that comes from taxation. You enjoy benefits from the government like 1) protecting you 2) defining a stable currency 3) providing infrastructure. That comes with an obligation to pay for that stuff. I always love those people who whine about their taxes with the mantra "It's my money, it's my money." Er yeah, it *was* your money. Somehow if I walk into a grocery store and attempt to buy food and then cry to the cashier "You can't have my money, it's my money, I earned it." I don't think it would get me too far!
True, too much government is bad, but too little government is also bad. As everything else in life, a balance is needed.
But the idea of trusting a business more than a government is scarey. A business has only one obligation, to maximize the earnings of its owners. They couldn't care less about the customer beyond retaining them as one, and that's the way THAT should be...
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.