Stock Options

On Bill Quick's fine Daily Pundit, I posted the following: The question of expensing out the granting of options is an arcane accounting consideration. The real-world truth is that the cost of options granted is borne by all stockholders in proportion to their holdings. It is not, in any real sense, a cost to the corporation. While the value of one's stock is theoretically diluted by the issuance of additional shares, stock price is of no effect to the (revenue vs. expenses) performance of a company.

The steamroller crashing through Congress today, while threatening to criminalize more elements of corporate behavior, is also making a mockery of the work of specialists and experts, who have derived and written the rules and laws that govern corporate behavior over the past many decades. The idea that 97 Senators, falling over each other to avoid being seen as pro-business, would be very funny if it were not so tragic. Those whose understanding of the capitalist system is cursory believe that money and profit are a zero-sum game. That is, one's gain must reflect another's loss. This is not even remotely true. It comes from the liberal impulse to lead with one's feelings, rather than taking time out to think things through. When the stock price rises, no one loses, all stockholders gain (except speculators in the options markets, perhaps). The reverse is true for share price declines.

The granting of stock options may, indeed, make money for the recipient. This is not, however, a cost to the corporation. It is a cost to the stockholders. Granting a tax-deductible expense to a corporation for the granting op such options makes no sense, from any perspective, except perhaps an emotional one that can be used by those who want to whip up a frenzy against "corporate greed" amongst those who will not take the time, or don't have the inclination, to understand the issues involved.

For those who will smirk and see this change as effectively a tax reduction for corporations, you should realize that the entire corporate tax paid is actually LESS THAN THE COMPLIANCE COST! In other words, the expense of the lawyers and accountants who seek to reduce the amount of corporate tax paid is GREATER than the actual tax.