The stock market’s rebound from the financial crisis three years ago has created a potential windfall for hundreds of executives who were granted unusually large packages of stock options shortly after the market collapsed.
Now, the corporations that gave those generous awards are beginning to benefit, too, in the form of tax savings.
Thanks to a quirk in tax law, companies can claim a tax deduction in future years that is much bigger than the value of the stock options when they were granted to executives. This tax break will deprive the federal government of tens of billions of dollars in revenue over the next decade. And it is one of the many obscure provisions buried in the tax code that together enable most American companies to pay far less than the top corporate tax rate of 35 percent — in some cases, virtually nothing even in very profitable years.
Senator Carl Levin, a Michigan Democrat, has tried for nearly a decade to eliminate the tax break, which affects the most commonly granted stock options. He has introduced a bill that would limit a company’s tax deduction for options to the same amount declared on its financial books. His proposal would also count options toward the maximum of $1 million that companies can deduct for an executive’s pay each year (outside of performance-based bonuses).