Facebook’s Future Filled with Tax Breaks As Americans Search for Retirement Savings

by admin on February 19, 2013

Facebook is reporting earnings of over a billion dollars for 2012. And how much did they pay in taxes?

Zilch.

No state or federal income tax came out of their pockets. Instead, the now-public company is getting a tax refund of $429 million. A bit envy-inducing, isn’t it?

021913_Facebook_Scott Beale

The company is being afforded a single tax break to earn that hefty refund – the “tax deductibility of executive stock options.” The stock-option tax break will also allow Facebook to receive future tax breaks and refunds – the company has $2.17 billion to come in tax breaks in future years.

Here’s how it works, according to Citizens for Tax Justice:

“Many big corpora­tions give their executives (and sometimes other employees) options to buy the company’s stock at a favorable price in the future. When those options are exercised, corporations can take a tax deduction for the difference between what the employees pay for the stock and what it’s worth (while employees report this difference as taxable wages). Before 2006, companies could not only deduct the “cost” of the stock options on their tax returns, reducing their taxable profits as reported to the IRS, but they also didn’t have to reduce the profits they reported to their shareholders in the same way, creating a big gap between “book” and “tax” income.

Some observers, including CTJ, have argued that the most sensible way to resolve this incongruity would be to deny companies any tax or “book” deduction for an alleged “cost” that doesn’t require a dime of cash outlay.[4]But instead, rules in place since 2006 now require companies to lower their “book” profits to take some account of options. But the book write-offs are still usually considerably less than what the companies take as tax deductions. That’s because the oddly-designed rules require the value of the stock options for book purposes to be calculated — or guessed at — when the options are issued, while the tax deductions reflect the actual value when the options are exercised. Because companies typically low-ball the estimated values, they usually end up with bigger tax deductions than they deduct from the profits they report to shareholders.”

So while Fortune 500 corporations are benefiting from these stock-option tax breaks and getting refunds up the wazoo, your average American is putting off retirement because they don’t have the savings for it.

The Washington Post reported that for the first time since the New Deal — Roosevelt’s set of economic reforms meant to pull the country out of the Great Depression — Americans are heading towards a retirement that will be financially worse than their parents.

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Our own Great Recession destroyed 40 percent of Americans’ personal wealth. Coupled with high unemployment, non-existent interest rates on savings accounts, diminishing Social Security benefits and a nation with an immense and fast-growing debt, the forecast looks dim for aging Americans.

How dim? About $57,000 in retirement savings deficits per American household, totaling $6.6 trillion nationally.

So while citizens and state legislators are calling on Congress to issue reforms for both retirement programs and executive stock-option tax breaks, we’re like, Hey Facebook, help a friend out.

 

Related articles: U.S. Considering Managing Retirement Accounts

Flickr photos courtesy of Scott Beale, lufcwls

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