Follow Slashdot blog updates by subscribing to our blog RSS feed

 



Forgot your password?
typodupeerror
Check out the new SourceForge HTML5 internet speed test! No Flash necessary and runs on all devices. ×
United States

Microsoft and Cisco Don't Pay Taxes? 342

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.
This discussion has been archived. No new comments can be posted.

Microsoft and Cisco Don't Pay Taxes?

Comments Filter:
  • Have you ever paid taxes on dividends before?

    Ahem.

    The payment you calculate in Schedule B
    is the second time you pay taxes on
    your dividents.
  • This is typical Slashdot under-researched proganda

    Mayhap you should consider a re-read of the article? It states (quite clearly, I might add) that by having employees exercise enough of their stock options, the company giving out the stock options gets a huge tax break.

    For Cisco, this amount to some 4 billion US (roughly). For Microsoft, it came out to 5.25 billion US (roughly).

    Every employee who exercises a stock option gets paid more. As an example, suppose I could exercise an option to buy MS stock for $15, and the actual price is $90. I, as an employee, have just made $75 (and I will be taxed on this $75). Furthermore, since this is actual income for me, tax law makes that into a deduction for the company (ie: They take $75 off of their tax bill). Have enough options exercised, and watch your tax debt go away, while your employees pay for it later. Again, go read the article. It's quite informative.

  • by Anonymous Coward
    A lot of people have been posting that this IS fair, because the tax does get paid (by the employee exercising the options), and the corporations shouldn't pay taxes for two reasons: first of all, the money they didn't make by giving the options to the employee (instead of selling them itself) is a loss, and second of all because if they pay corporate income tax, then shareholders pay taxes twice.

    But these arguments are fallacies, and here's why:

    First of all, the supposed "loss" that the corporation takes by giving the stock options to the employee doesn't exist. There may be an opportunity cost, but there is no loss. If you say there is a loss, you're assuming that the company would have done just as well with unmotiviated, uncompensated employees as with happy, well compensated employees, which I think is obviously not true. So in fact, by giving the options to the employees, the corporation is increasing its productivity, and therefore (at least theoretically) its stock price. So, there is no loss.

    Besides which, you can't take a deduction for money you didn't make -- for example, I can't go to the IRS and say, "Well, I could've sold short Apple shares and made $50,000, but I didn't, so I'm taking a $50,000 deduction."

    Since the supposed "loss" does not exist, the corporation should owe federal income tax according to current law. From here it's a simple argument: if the goverment doesn't tax that money, it has to tax something else, and guess who that will be? Yup, middle-income workers. So corporations, which enjoy the benefits of government (trade agreements, roads, protection of law, work visas), make campaign contributions, and pay lobbyists, make absolutely no contribution back to the government. And of course this mostly benefits the largest shareholders, who are, pretty much by definition, rich.

    Putting the entire tax burden on the workers might make sense if the entire profit of the company went to the workers. Since most of the profit usually goes back into the corporation (often to do things like buy houses and planes for the executives and board members -- tax free), the corporations should clearly pay taxes.

  • by quakeaddict ( 94195 ) on Monday October 09, 2000 @03:05PM (#719715)
    ...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.

  • So if they sold that them selves and made the $90,000 themselves, then gave the $90,000 to the person, they wouldnt get the deductuction.

    Well, no. You see, stock represents the value of the company. If they sell the stock, they are converting some of that value into cash. Same-Same, as a great physics professor used to say. So no tax deduction.

    If they give the $90K cash to the employee, (presumably as compensation for work performed,) it becomes an expense -- a cost of doing business, money they have to spend to make more money. (And in fact, stock options are pretty much the same as the company selling the stock themselves and giving the money to the employees, hence the deduction.)

    If you have a lemonade stand and sell 20 glasses of lemonade for 5 cents each, you had a gross profit of one dollar. If the lemons cost you 75 cents, however, and you had to pay your little brother 50 cents to squeeze them, you've actually lost 25 cents, a net loss.

    One reason companies don't just say "we'll pay you a $90k bonus" is that if the company doesn't do well, they would still have to pay the employees their bonus. With stock options, the employees only do as well as the company. (Which is why stock options should be treated as a bonus, not an integral part of your compensation package.

  • There is some guy who has been saying that Microsoft (and others) have actually been losing money based on the cost of stock options being exercised. The thing is that unlike salary the cost to companies of employees exercising the stock options are not count considered an expense on the balance sheet.

    Maybe you're thinking of the Microsoft Financial Pyramid [billparish.com] page. The stock market thinks Microsoft is making money because those stock options are not listed on the financial statements as expenses.

  • Shhhhh, we don't want the sheep, er people, with Socialist Slave Numbers, er SSN, to find out the truth about SSN being completely VOLUNTARY, or the fact that it is NONE of the governments fucking business how much we do or don't make. Let them dig their own grave, because they refuse to seek out the truth.

    BTW, nice to see another sovereign on /. :)

    --
    "The issue today is the same as it has been throughout all history, whether man shall be allowed to govern himself or be ruled by a small elite." -- Thomas Jefferson

  • I agree with you 95%.

    Yes, indeed, the notion that corporations "pay taxes" is a fiction. If they don't either "charge it back" to their customers, or pass it on to their owners, then the tax essentially demolishes their ability to be profitable on behalf of the owners, making them unviable. (I've actually prepared corporate income tax returns, so I quite know that this needs to be couched in all sorts of "legal ums and ahs" in order to be treated as true...)

    On The Other Hand. Corporate "taxation," such as it is, exists for two reasons:

    • Because mindless voters will vote for this sort of thing, and
    • Because there are some Tax Games that could be played by keeping monies inside the company, potentially avoiding indefinitely taxation of the income-making activities.

      By providing something that pretends to tax the corporation, and which potentially hits up the individual for two tax bills rather than one, this forces the individual to make the company disburse incomes sooner.

  • This is just the tip of the iceberg. see Ralph Nader [votenader.com] for more.

  • If this corporation of yours go bankrupt, what happens? Are you liable to repay any outstanding debts?

    Actually this isn't entirely true.

    In Ohio (where I live and work for an incorporated company) We are entitled to protection if we go bankrupt. But keep in mind we do have to pay monies owed. What happens when you are incorporated is that someone can't come and take my car, or my house that are in my name. Anything that is in my companies name can be siezed, but it protects me from losing my personal belongings (providing I didn't use them as colateral on loans etc.)

    Otherwise banks can repo computers, business vehicles, etc..

    Just though I'd clear that up.

  • Whoever Is Their Tax Man, I Want Him! If Microsoft can get out of a few million in taxes, maybe i can get a few hundred bucks back So i can be forced to spend it on microsoft products and be taxed on that. Hey! wait a minute!

  • Foreign companies pay import/export taxes.

    If a company does a large amount of business in the US, they are usually incorporated in the US (Toyota, Sony etc..) This is more affordable than paying import taxes.

  • by kaisyain ( 15013 ) on Monday October 09, 2000 @02:20PM (#719735)
    You just now figured this out?

    Many corporations pay very little in income tax.
  • by FallLine ( 12211 ) <`fallline' `at' `operamail.com'> on Monday October 09, 2000 @06:39PM (#719737)
    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.
    Ok, let's be honest here. It's not the corporations you hate, it's that some people are making more money than you. If you felt these corporations were a vehicle to improve the wealth of people such as yourself, you'd have no problem with it. So to say you're giving corporations "welfare" means nothing.

    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.

    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".
    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.

    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.
    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]

    And face it, no matter how innovative you may think you are, you're quite unlikely to become a multi-millionaire.
    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 very few ways to do it - one is to save more than 10 percent of your income.
    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? ....Also, he said he invested substantial part of his money in Cisco!
  • Yes well, if you break the law you deserve what you get though.

    Nothing personal `;^)

  • Fewer and fewer americans pay taxes, and they're the richest part of America.

    I think you need to adjust your meds again!...

    Pitty the oppressed wealthy of America! They get such a raw deal (that's why they are all flocking overseas)...

    Am I paraphrasing you correctly, or did you write what you meant to say? If you mean what you have written, then you are out of touch with reality.

    Turn off Rush Limbaugh, take a walk in the fresh air and then check your facts.

    Your fantasy about the loss of the franchise for the poor being the logical consequence of progressive taxation suggests that you may be experiencing a psychotic break.

    I just hope the people who moderated you up did it out of appreciation for the artisitic quality of your fiction--It's disturbing to think that more than four people share this delusion.

    Just on the off chance that some of you aren't complete wackos and would like to check the facts:

    Census tax data [census.gov]

    Census income data [census.gov]

    State income & tax data [taxadmin.org]

    For those of you who don't like reality, please on your meds and don't play with firearms!

  • If you stop to think about it, even companies that send money to uncle sam for taxes, don't pay taxes. They alter the price of their goods to cover the tax and pass it on to their customers. Ultimately it is the individual who pays all taxes, the government has become very adept at hiding this truth from the masses.
  • Duh. No, it does not automatically go to the shareholders. A C-corporation (public companies all fall into that category) has to give dividends for shareholders to make money, and some companies do not. Those that do give out dividends do not usually give out everything they make in dividends. In fact, they usually only give a very small amount of their profit out in dividends. The rest goes into their bank account or other interest-making accounts and becomes assets on the balance sheet.

    Now, someone here said Microsoft and Cisco do not pay dividends to their shareholders. If that is the case, then no one is paying taxes on the corporate income. And even if Microsoft was paying dividends, Microsoft made the money. They should pay the taxes. We're talking about a very damned large company that could buy most countries that doesn't pay a cent to the U.S. government. And the shareholders do not either. Talk about the taxpayers being ripped off. Meanwhile, while this giant faceless entity is making tons of money and not paying taxes, people who live under the poverty line still have to.

    It's time to end corporate-welfare. Stop giving money to corporations. Stop paying out more welfare to corporations than to individuals who actually need it. And, stop creating huge loopholes that allow giant filthy rich corporations to get away without taxation.

    Americans, vote Nader. Canadians, vote Green in the next election.

    Corporations should not be people. A person is a human being.
  • Actually, accounting fees are tax-deductible, not only for corporations but for individuals.

    - Robin
  • Stop and think a moment, I guess you are American. Just imagine Toyota selling cars in america and not paying any taxes. The taxes are going to be paid by Toyot's share olders.. mainely in Japan. Is it fair that way?

    I'm french canadian. A lot of the compagnies doing business here are owned by americans. Since Canada can't taxe americans for the money they make on their shares I guess we just get screwed.

    The problem is with the way free trade is currently done in north america. No political or social arangements are done before we allow trade to go on. Europe is a less insane model. Minimum social values have to be met if one wants to be part of the union.

    The "laissez-faire" attitude shown by posts like yours is indeed very dangerous for the futur of democracy. Never forget that your liberty ends where other peoples liberties begins. And that even if the others are a minority.

  • by slickwillie ( 34689 ) on Monday October 09, 2000 @03:17PM (#719756)
    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.
  • The article notes that companies write-off options granted to employees, but do _not_ account for the options expense against revenues. See http://www.billparish.com/msftfraudfacts.html arguing that this practice constitutes real fraud.
  • At least not directly: taxes are always, always, always passed on to the consumer. it's just another cost of doing business.

    what, do you think the guys sit around the boardroom when a new tax gets passed, and they think, "well gee, we're gonna have to bite the bullet on this one." hell, no! they raise prices, pure and simple.
  • by Sir_Winston ( 107378 ) on Monday October 09, 2000 @07:13PM (#719760)
    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...

  • I agree with one fact: Corporations are not people.

    This certainly does not mean that corporations should be exempt from tax--even if the individuals who own the corporation are taxed for money made from owning stock. Here's why:

    * Corporations draw on public infrastructure. Are you going to argue that a company's usage of public resource is only as great as the sum of its stockholders? That is lunacy. Corporations use natural and public resource as an entity in and of themselves; therefore they need to compensate the public accordingly.
    * In a time when corporate profits are at an all time high, and labor is payed the lowest (in real dollars) amount since the 1970's. 1/3 of the United States's labor force makes less than 10 dollars per hour, and many of those make right at the minimum wage.

    Do you propose that these people should pay a higher percentage of their income in taxes than the 2nd and 4th most valuable corporations in the United States? It doesn't sound so good when you look at it that way does it?

    * Finally, I do have another major beef with corporations. This is it: they are not a person; they have limited liability; they are not citizens, and yet they seem to have much more pull in government than ordinary citizens.

    I think that the least corporations can do is pay their fair share.

    I also think that the tax structure needs to be reset to be a true progressive tax. As it is a disproportionate burden falls on those least able to pay.

    I would say that it's just mush-headed libertarianism to say that corporations should not pay taxes, but that might be misconstrued as flame-bait :-)


    Check out Ralph Nader if corporate interests seem a little too strong. VoteNader.org [votenader.org].


    Check out this funny piece of we b animation [netscape.com] by Tom Tomorrow while you're at it :-)

  • Maybe I can right off R&D costs for Kid Version 3.0.
  • If Microsoft or Cisco ever paid divedends in their corporate histories, your argument might have a little more merit. As they haven't, I don't see the point. thad
  • or does this article have 200 posts saying the exact same thing?

    --
    Be different, just like everyone else.
  • Any taxpayer can do the same thing. Simply form a corporation, and sell your stock to selected people (e.g., your employees whom you wish to reward) for less than its fair market value (i.e., what you could sell the same stock for on Wall Street).

    The difference between the value of your stock and what the employee paid you for it is legitimately termed "compensation." Compensation to employees is a legitimate corporate expense that can be written off on yours, or my, or Microsoft's taxes. Why? Because the recipients of the compensation pay the tax.

    You'd probably be a pretty unhappy camper if your employer cut your salary by 40% because they suddently lost the ability to write you off as a business expense. Stock-option compensation works exactly the same way. If you have a problem with this accounting rule, take it up with Congress, not Microsoft and Cisco. It's only a few hundred years old.
  • by aozilla ( 133143 ) on Monday October 09, 2000 @07:39PM (#719781) Homepage
    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]
  • 'cause I believe in trickle-UP economics!

    With trickle-down economics, you have a large amount of money circulating among the individuals & entities which already have a lot of money, and the other elements of society get along with whatever happens to "leak" from that small club. To me, this seems like a very stagnant situation.

    On the other hand, if those large flows of money are systemically injected as low in the financial "class" structure as possible (perhaps through really strong & inexpensive educational programs?), then I believe that there are MANY individuals who could take advantage of that kind of help, but who are currently regarded as non-productive members of society because they are "resource-starved" and can't get beyond a survival existence to really achieve their full potential.

    I think that policies based on "trickle-up" economics would result in a much more dynamic & equal-opportunity-oriented society.

    It's this kind of approach (setting up the system so that the "lower" entities in any system tend to get the benefits) that made me propose the above alternative.
  • I become a statistical support to the notion that IE 4.0 is the dominant web browser

    Only if you use it, in which case it is a valid statistic, in that you are an IE user, regardless of how you obtained it.

    ...more incentive for new computer buyers to buy Windows98... Does Microsoft get taxed on the copy I pirated because of the way it benefits them?

    No, they get taxed on the sales of Windows98. It cost them nothing unusual to generate those sales, so they only deduct their normal costs and pay taxes on what the net profit. They pay no taxes on the copy you pirated, since they received no income for it. If, however, they could identify that you did indeed pirate it, they might be able to deduct something as lost income, but IANACPA! (Certainly, if they found out, you would probably go to jail.)

    As for the benefit you provided to Microsoft by being another IE user, that doesn't show up on their books -- it shows up on yours. You are spending time/effort/money to promote someone else's product, in effect. Generally, one would only do this if they get some benefit from so doing (i.e., free t-shirt, some agreement, etc.), but these days there are morons going around paying to have Nike logos slapped all over their cars, or to have the Fila logo shaved into their heads. Go figure. (Of course, I'm one to talk -- I've got Land Rover t-shirts that I paid for.)

  • Well, I have no real economics training, but I seem to do as well predicting the direction of the economy by pulling numbers out of my ass as any of the so-called "expert" economists, so pardon me if I think your degree is as worthless as the quotes you used. Your government-can-do-no-good attitude just highlights your irrational bias. I prefer to treat the subject as a massive systems-analysis-and-design problem, where money is just an extremely potent resource for whatever elements of that system which happen to have it.

    Your so-called criticism of the US education system is primarily an indictment of those elements of US society who DON'T WANT the general populace to be highly educated (mass-marketers, demagogues, social-conservatives and yes, bureaucrats, for example). Highly-educated people tend to think about what they're being told before accepting it (or worse yet, take the initiative to solve problems). That's highly annoying when you just want a bunch of followers who you can lead around by their noses, or expect them to keep out of trouble when you don't have anything for them to do.
  • 1) stuff which requires insane amount of capitalization, such as massive chip-making foundries or huge construction
    projects - probably only the government would be able to afford stuff like this


    Well I for one wouldn't have a job if it wern't for privately owned chip fabs, we certianlly wouldn't have slashdot and a public internet. Without the ability to spread and limit risk in the legal structure large commercial ventures would be impossible and we would have to rely on the government for large capital projects. I point to the former USSR as an example of why that's a BAD idea, along with former east germany, north korea, most of mainland china etc... Marxism has never and will never be a successful or effient means of running a government/economy, history has proven this, over and over again. The USSR which has more and richer farmland than the US, and more mineral resources was barely able to feed itself by the end of the cold war and broke the back of it's economy trying to keep up with us on the weapons front. On the other hand we capitalist pigdogs from the west were exporting grain to the USSR, feeding ourselves plenty, building a globe stratteling empire (and the armed forces to control it) while civillains barely felt the pinch as the US standard of living rose. Yes we had recessions during this time, and a bad gas shortage, but even during the worse recessions average Americans were better off the average soviet citizens.

    While it is possible even for a large nation to survive and feed itself with only small farms and cottage industry but that's all it'll do, survive. Without economies of scale afforded by large corporations, and the massive, government rivaling capital they can raise our modern economy and way of life would vanish. Incidentally you also get dis-economies of scale as an organization grows to large to easily control. This does a pretty good job of keeping corporations from becoming too large and dominate in a free market, to exist beyond a certain size a company needs government assistence to prevent competition (the old local phone monoplies, the entertainment cartels RIAA, MPAA etc can only continue to exist by bribing a large and corrupt state to build a legal shield to protect them from competition.) As far as leaving high capital projects solely in the hands of a state organization, which also BTW tend to suffer from the same dis-economies of scale, may I direct your attention to NASA and the space shuttle?

  • OK, I'll admit up front this is somewhat off-topic, but I can't resist.

    Recipe for tax simplification in the U.S. (and possibly elsewhere):

    Step 1. Require that all politicians complete their taxes by themselves (no help interpreting the laws from CPAs, accountants, or lawyers) and by hand (no TurboTax wizards, although I suppose we should allow Excel spreadsheets and calculators to be fair). Let them see just how difficult they have made the situation for the average citizen.

    Step 2. Sit back and wait as the moans mount from Washington D.C. and the respective state capitals.

    Basically, my problem with U.S. income tax laws is that they are so complicated that no human being can actually hope to comprehend them (unless they happen to have a super-simple life, like $20K in salary and no income from savings, investments, etc.). But the politicians who create the laws don't *have* to comprehend them, because they can hire a bunch of accountants to worry about it for them. And even though I think Gore is probably a more viable candidate than the other goofball, the complexity he wants to add to the tax code scares the crap out of me.

    I support Harry Browne [harrybrowne.org], Libertarian [lp.org] for President.

  • by OWJones ( 11633 ) on Monday October 09, 2000 @03:38PM (#719796)
    > So, please stop. Corporations are not people, the shareholders are and we already pay lots of taxes.

    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

  • That 3 million still puts him in the much despised 1%, the same group that he loves to slam. If this money is really for his campaigns, then it shouldn't be in his name. It should be in his non-profit's account, so he can't get to it. The point that a gay lobbyist (may or may not to true) has as much money as him is irrelevant, it's Nader who is proclaiming all these economic reforms. If he's going to talk the talk, he should walk the walk.

    Most corporations do pay plenty of taxes. These few cases are an exception, but as I pointed out above, it's not free money. It'll probably cost the shareholders more money ultimately. Anyways, what's the point of taxing a corporation? You act as if taxing the corporation is an end into itself. It should not be. Why is it so evil for a corporation to not get taxed? In reality, they're simply an agent for a lot of individuals, some rich, some poor. When those individuals sell their shares, or recieve dividends, then they're subjected to all the taxes that the corporations earned. Furthermore, the richer the individual is, the larger percentage the individual pays. As we have already established, MOST of the burden does, in fact, fall on the "rich". In addition, empirically and theoretically speaking, corporations pay significantly more taxes than either partnerships or sole proprietorships. So what gives?

    For a supposed Republican, you have an awefully bitter economic view.
  • by bbug ( 88125 ) on Monday October 09, 2000 @02:24PM (#719814)
    the employees who exercised their options paid taxes, either through AMT, capital gains, or income tax. So, in theory, the government got something from the company's owners.

    yes, it is a loophole, but it is not like the money completely disappeared.

  • by WillSeattle ( 239206 ) on Monday October 09, 2000 @02:24PM (#719817) Homepage
    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).

  • by Speare ( 84249 ) on Monday October 09, 2000 @02:24PM (#719819) Homepage Journal

    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.

  • 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.

    What the frick are you talking about? Do you actually know what you are saying? Have you ever paid taxes on dividends before? If you have, you'd know how to spell them. You would also know it is not a "corporate income tax." It is an "ordinary dividend tax." They are calculated on Part II of Schedule B. And FYI, this is part of the progressive personal income tax in the USA. Larger amounts of taxable income (dividends included) are paid at a higher rate.

    I have the feeling you are also trying to talk about capital gains taxes too (that's when you sell your AT&T stock), but I don't want to confuse you even more than you seem to be already.

    This has nothing to do with a corporate tax! Sorry for the ranting, but I am proud to pay my taxes and actually understand what I am doing.

    Who modded this up?

    --
    dman123 forever!

  • Great points, but there's one thing in your comment that's potentially misleading:

    Cisco employees are taxed at the top bracket for personal income taxes whereas Cisco gets taxed at a lower corporate rate.

    This is not necessarily true. There are (at least) two kinds of stock options: ISOs (incentive stock options) and NQSOs (non-qualified stock options). ISOs, under the right circumstances, are taxed at the long-term capital gains rate, which is something like 18%; in any case, it's significantly lower than the higher income tax rates (31, 36, 39.6%).

    There are restrictions on a corporation's ability to grant ISOs; dollar limits how many ISOs an individual can be granted each year; restrictions on exercise and sale dates (if you want the preferred, i.e. non-income-rate, tax treatment); and furthermore there are circumstances where ISO exercises can trigger the dreaded AMT (alternative minimum tax). So it's basically a big complicated furball. But the bottom line is that ISOs can result in much lower taxation for an individual than an equal amount of income paid as salary. I'm afraid I don't know what the comparable corporate rate would be so I can't say whether it's more or less than that.

  • Accounting is a funny business. As a founder of a company, I've had to deal a lot with similar tax issues. Since I'm not an accountant, I've found the best way to understand this murky business is to believe in one fundamental law: the conservation of taxes. You can shift money around, but no matter what you do, you will end up paying taxes on it.

    In the case of Cisco, they have pushed the tax burden from themselves onto their employees. Moreover, as a result of this, MORE taxes are being payed. Cisco employees are taxed at the top bracket for personal income taxes whereas Cisco gets taxed at a lower corporate rate.

    Remember that news organizations present you with the Blue Pill: the story you want to believe in. In this case, it is that big bad corporations aren't paying taxes. The Red Pill is that taxes are indeed being paid. Trust me: if the IRS isn't up in arms over this issue, then you have nothing to worry about.

    However, there are controversial issues surrounding this debate. The important one is that Cisco is operating their business at a loss, and has been for years as their stock goes up. From a certain set of accounting principles, you can prove that Cisco has never made a profit but has instead lost billions of dollars year after year. Moreover, roughly 15% of its value is owed to employees who own stock options. As an investor, you should understand the implications of this. Most investors don't, and are just keep piling money into this pyramid/tulip scheme.

    From another perspective, maybe this doesn't matter. Almost identical accusations were made about Microsoft 10 years ago with proofs of how the entire house of cards was ready to collapse. I listened to the doomsayers then, much to my chagrin.

  • by xFoz ( 231025 ) on Monday October 09, 2000 @02:25PM (#719825)
    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.
  • by Gorobei ( 127755 ) on Monday October 09, 2000 @05:23PM (#719826)
    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.

    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.

  • Those pages base a supposed lack of obligation to pay Federal Income Tax on a very bizarre redefinition of what it means to be a United States citizen. What a load. This might work in Waco, but it probably won't fly in most of the U.S.
  • by painecave ( 189032 ) on Monday October 09, 2000 @02:28PM (#719842)
    So, the government rewards companies that comp their employees. And it isn't free to give employees stock options or other benefits. Generous companies get bigger tax breaks. In this case, the companies ended up being so generous that they got a tax break big enough to cover their taxes for the year.

    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.

  • Forgive me if I act a bit skeptical. Get to write off stock options? Maybe so, but does that account for all of Cisco and Microsoft's taxes? It would seem that if their employees are excersizing that many stock options, their stock would be worth more than the company. That doesn't sound right.
  • by Mark F. Komarinski ( 97174 ) on Monday October 09, 2000 @02:28PM (#719857) Homepage
    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.
  • One thing that may make you happy is when you think about the stock options in a company the 90:1 rule usually applies. i.e. 90% of the stock options were owned by 1% of the company. In Microsofts case, that's probally, Bill, Steve, and a dozen board members. So when you think about those bending over and taking some Capital Gains action from the IRS at least feel happy that it's comming mostly from those who deserve it.

    On the other hand I'm willing to bet that there is some pretty creative accounting going on for the Gates Tax Return.
  • if there was any doubt we have a federal government run by corporations this should end it.

    Oooh! You get an F in logic and rationality. If no corporations paid taxes, while everyone else did, then you would merely have a piece of circumstantial evidence. But you don't even have this!

    Why do you claim that corporations run the federal government because they took advantage of tax writeoffs, shelters and loopholes, yet ignore the thousands, maybe millions, of individuals that do the same?

    My previous employer paid no taxes. But it was an unincorporated three man operation with revenues (not profits) of only $250,000 a year (a very small business). A few years ago my Mom did not pay taxes because of Amway (of all things).

    I find it especially ironic that CmdrTaco is an employee of the OSDN corporation. I wonder what federal agency he gets to be in charge of for being their faithful lapdog? Or does he get a cabinet post?
  • by Prometheus_NG ( 61422 ) on Monday October 09, 2000 @02:29PM (#719874)
    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.
  • by Apuleius ( 6901 ) on Monday October 09, 2000 @02:29PM (#719879) Journal
    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 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,...

    This holds true for the entire US legal system, I think.

    Too bad there wasn't anything in the Constitution that forced our representatives to keep consolidating the laws into something approaching common sense - I keep daydreaming about the general rule I heard about that one Scandinavian tribe followed: the only valid laws are those which most of the tribal members can recite orally by heart at their annual tribal meeting. Anything which most of the people forgot isn't a law anymore :)

  • When companies pay their employees with cash, they deduct the expense and pay less taxes because the employees are paying taxes on that same amount.

    When companies pay their employees with options, they deduct the expense and pay less taxes because the employees are paying taxes on that same amount.

    So what?

    I'd be worried if this wasn't the case, because it would mean that companies which compensated their employees with options would be paying much more in taxes than if they compensated their employees with the same value of cash.
  • From the article,

    • Jon Coupal, president of the Howard Jarvis Taxpayers Association[,] also said he believes it is "hypocritical" for Cisco to take this "massive tax break" and at the same time support Proposition 39, which would make it easier to raise property taxes on California homeowners. Prop 39 would allow local school bonds to be approved by a vote of 55 percent instead of the current two-thirds.

    I'd like to see a situation where a Corporation was only allowed to donate as much money as they paid in State or Federal taxes. A sort of 'matching funds' if you will. Your company pays $100k state taxes, it's allowed to spend $100k into the coffers of any state political party.

    Maybe put the same sort of cap on paid lobbying activities, too.

  • by plopez ( 54068 ) on Monday October 09, 2000 @06:12PM (#719894) Journal
    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
  • by hey! ( 33014 ) on Tuesday October 10, 2000 @07:26AM (#719895) Homepage Journal
    Or are you in favor of taxing the same gains twice?

    By that argument, dividend income should not be taxable.

    Personally, I think stock options should be deductable, but not for the same reason you do.

    There is a simple, internally consistent way of dealing with this problem that has been used since the invention of double entry bookeeping. All forms of employee compensation should be considered an expense. It is not taking this simple and logical step that puts us into the land of taxation paradox.

    By not expensing this form of compensation, from an accounting standpoint its as if the employee's gain came out of thin air. Or more precisely, what is happening is that there is a transfer of wealth between the existing stockholders and the employee that takes place off the balance sheet and income statements.

    The result is that an individual's stock may consistently lose value, yet the company can claim to be profitable.

    So, an alternative explanation of this scenario is that Microsoft and Cisco are not in actuality profitable companies, because they're pissing away stockholder value on stock options.

    The obvious question is how can they can grow if they are not profitable. I think the question deserves to be stood on its head. It's actually easier to hide losses during high growth; I once worked in a company that lost money five years strait but grew at an enormous rate. That's why accounting was invented -- to give a truer picture of a company's value. Taking options off the books means that they aren't factored into the question of whether the company is really fundamentally sound. It makes the company look better on paper than it should; combine this with a general atmosphere of growth in the IT sector and it allows management to sweep losses under the rug or to turn lackluster profitability into stronger profitability.

    Not expensing options is a kind of pyramid scheme -- the illusion of greater profitability buoys the stock prices until some future generation of stockholders ends up holding the bag.

    "Fairness" is a pretty difficult concept -- I know it when I see it is not good enough. I think a good test of fairness, at least in taxation policy, is whether or not economic incentives are distorted unnecessarily. If Microsoft could not claim profitability, you could bet they would alter the way they give out stock options. This might not be popular in Redmond, but folks who have their retirement money in MS and Cisco may be in for a rude shock.
  • Actually, yes. Because our taxes are withheld monthly (or biweekly) and computed yearly, the gov't gets to hold our money for up to a year at no charge. If we could hold that money we could invest it.

    Now, switching to a monthly tax computation wouldn't be _needed_; it would just be the easiest way to evade the obvious mistakes of not saving enough to pay your taxes. I would personally prefer withholding to be done, but the money placed under my control until the appropriate time.

    The result would be that we would *know* how much we're being taxed. Right now we can only guess.

    -Billy
  • Your insults don't change the fact that the top 5% pay 50% of the taxes.

    And I'm not whining about the wealthy -- I'm telling you what the wealthy are going to DO TO YOU. I don't want that, you don't want it. Don't let your partisanship get in the way of your ability to think.

    The people who pay for the government WILL run the government.

    -Billy
  • All told, these darlings of the stock market aren't actually making profits. The government recognizes this in their tax policy, so they aren't charged for their nonexistent profit.

    People who go work for a company like MS get most of their pay in stock options; the employees know this and factor it into their pay. So the company gets employees of greater quality than their salary alone accounts for.

    The reason that the feds consider them broke for tax purposes but they report a profit everywhere else is that the value of the stock options is factored in as an expense for tax purposes but ignored otherwise.

    If you consider people exercising their stock options to be equivalent to the company paying them the value of the stock (which it obviously is), and count it as an expense, then these companies are actually losing money.

    MS and Cisco are pure "Baseball Card" stock. They could not pay, and never could have paid, dividends equal to the on-paper profit of their stockholders.

    Their value is based on their perceived value. At some point in the past, people saw their prices go up and (absurdly) considered a simple extrapolation of this trend to be a reasonable assumption about future behavior. As long as a sufficient number of people believe that the price will go up, and toss their money at it in that belief, it will.

    Other people call it a "stock bubble", because it's empty and eventually bursts. I prefer "baseball card stock" because this exact thing happens with baseball cards (and pokemon cards and any other inherently worthless junk that starts to increase in value because of clever marketing to naive children and then carries on as people begin to believe in a reasonable probability of future resale and consider it an investment).

    Another name for it is "pyramid scam". Because, like any pyramid scam, eventually it reaches a point where everyone who can be suckered in is, and then there's no new money to keep pushing the value up; at that point, the upward trend that everyone believed would go on forever stops, once that happens, everybody realizes they've been scammed and tries to sell it while it's still worth something. Crash.

    Neither MS nor Cisco are sound businesses. They attract the best employees with stock options they can't afford in the long run. When the stock stops going up, they either lose all their good employees (and go under due to employee incompetence) or pay them what the stock options would have been worth as salary (and go under due to paying out more than they're taking in).

    I dunno about MS (which seems to make money from promoting inferior software over superior alternatives, and is thus harmful to everyone in general), but 3 cheers for the Cisco scam! We get all that good Cisco stuff for less than it really costs to make, and dumb stock market investors are footing the bill. A fool and his money are always parted, at least the public at large is getting some good stuff out of it (and we, as heavy internet users, are making out like bandits).

    --------
  • by UncleRoger ( 9456 ) on Monday October 09, 2000 @02:32PM (#719905) Homepage

    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...

  • And the best thing is, I didn't have to lie, cheat, steal, or fuck anybody I didn't want to. Or even kiss a whole lot of ass. Well, a *little* ass kissing was required. But NO tongue. All I had to do was put in an honest day's work.

    And, my company are not fucking bastards like Microsoft or Intel. They're actually relatively decent (wasn't always true), and even support Linux with some products. No, they're not Open Source, tho.

    THIS is how capitalism is supposed to work for EVERYBODY. It's nice that it worked that way for me, too bad it doesn't work for everybody else.
  • > When I was a kid, corporations paid three-quarters of the income taxes.

    Which of course they never passed on to you, being such kind benevolent generous souls that they are.
  • I don't forget what it was like when I was making $18k a year, and had a wife and two kids, and had to live with my parents for 9 months to save up enough money for a down payment on a condo.

    When I think of what I was paying in taxes then, and how I lived, it sickens me, and I'm ALL FOR a progressive tax. And I'm not too sure I'm comfortable about capital gains tax - I feel that it should be taxed at the regular rate, but it does try to incent stock owners into owning a stock for at least 12 months, instead of selling right away. Although I don't at all like Alternative Minimum Tax. That's a total screw-job, and needs to disappear.
  • Cisco would presumably owe income tax on the money they paid out. Smart employees would buy their options and hold on to them for a year before selling, thus paying long term capital gains tax. The capital gains tax rate is lower than the income tax rate. I don't see how the government will get more money.
  • by weave ( 48069 ) on Tuesday October 10, 2000 @02:19AM (#719934) Journal
    Governments don't ensure your freedom.

    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...

  • If your version of 'paid out to the employees' == 'gave them worthless paper instead of money' then I'd like to see you pass it at the local Costco ;)

    Hasn't MSFT lost about half its valuation since the peak? Not only is it a pyramid scheme (see Bill Parish's analysis [billparish.com]) but it is running out of steam. Choke this down: MSFT basically lost ten _billion_ dollars just in '99 and hid it with accounting trickery. How much are they losing now, struggling to not completely fail with W2K migration against Gartner Group advisories, to kluge together .NET and paper over the many quietly failed projects like Fahrenheit (sp?)? The real losses are _accelerating_ not reversing, and they can only pay people in options- they _cannot_ meet payroll if they had to pay people actual money.

    If it was any other dotcom, they would be _toast_ but any fraud is based on a lot of social engineering, and this one's had a good long run. Think about it- the argument around Slashdot is typically 'is it right/sane that MSFT is so wildly successful and popular when their products/practices suck so bad?', but the idea that MSFT is wildly successful is rarely challenged. Yet when you look at the information (again, Parish is useful- people seem to challenge his interpretation but not his numbers and facts) you see that their sales are a miserably small proportion of their income and most of it comes from an options pyramid scam and 'corporate welfare' (I'd be interested to see more data on that. Define 'corporate welfare'?). This is nothing like a sustainable business model, much less 'thriving on innovation', yet because of the sheer scale of the exercise it goes largely unquestioned.

    The upshot is, we're about due for another Great Depression based on the fact that too much of the economy is focussed on these pyramid-type companies- ones that have valuation wildly in excess of their revenue and assets, ones that are fostering mad speculation on the basis of _stock_ performance which reinforces the pyramid scheme until it collapses. As Parish shrewdly points out, doing this allows these companies the ability to stomp all over companies that are actually practicing _sustainable_ business models, potentially endangering them and putting them at risk of being 'out-competed' by the ones that buy into the pyramid scheme heavily. There's this one small problem: pyramids end. Always. You can tell it's starting to happen when the 'growth' _stops_ being geometric and levels off- the model doesn't allow for that, and the pyramid crashes at that point, hosing everybody who got left holding the bag.

    The danger in a Microsoft setting the tone for the modern economy is this- as they are willing to go right over the edge into illegal practices to protect their pyramid but it will still end at some point, the risk is that all the pyramiding companies will successfully stomp all over 'old business models' and the old-style companies will go out of business, unable to employ people. The result would be a larger and larger percentage of the workforce paid in options as the companies adopt the MSFT pyramid model in order to keep up- options for pumping gas, options for shelf stocking at Wal-Mart- then when the pyramid tops out and collapses, it takes the ENTIRE economy out with it. That could be worse than the Great Depression- hell, through the 90s my (GenX) age bracket suffered exactly the unemployment and income burdens recorded in the Great Depression and nobody batted an eyelash because the yuppies still made their money. This time it won't be a yuppie-exempt crash- far from it.

    I'd say the best thing to do is to realise that there's no disaster that someone doesn't profit by- and if you're determined to buy into the whole stock thing get ready to short like a madman, but better still, lay plans for a post-pyramid world. That means, accept being stomped on for the moment and build businesses that focus on _real_ revenue and do real work for real money- even though that is totally a losing strategy at the moment. Nothing else will survive the market correction we're due to receive- things will be incredibly nasty but with a head start in _serious_ business practices (rather than pyramid-focussed wish-fulfillment valuation) it's going to be a terrific opportunity for anyone willing to really work.

    Constructive criticism you want? Fine- MSFT and CSCO's problem aren't that they're not paying taxes. Their problem is that the ONLY ARGUMENT that they're making a PROFIT is this evasion of paying taxes _or_ normal wages. It's not about them not paying taxes, it's that they have no business being stock market heavyweights when they lose shitloads of money! That's just asking for trouble! End of story.

  • It's a pyramid scheme- the amount of 'income' involved with this sort of thing is _substantially_ more than the income associated with what supposedly is their core business. MSFT and Cisco are not stock brokers: their core businesses are supposedly not issuing stock, but writing software and building routers respectively (a simplification, but get the picture?).

    If Microsoft entirely gave up on all the programming activities that cost them billions a year, and did nothing _but_ issue options and buy up other companies, taking their technologies and ceasing work on them and giving the newly taken over employees more options, would you still think this made any kind of sense? Why do you think it makes sense when they make a pretense at being a technology company?

    This is not a picture of a technology company, and still less is it 'creation of wealth', and other companies should be encouraged to hang tough and _not_ do the same: this behavior is a pyramid scheme centering on stock valuation, and pyramids END. It is useless, productless, pointless money-juggling, impressive-looking while the 'pyramid' builds, but destined (like all pyramids) to crash. When it does it's gonna take the US economy, and probably the world, with it. (possibly excepting Japan- Japan has been there done that in recent years, that's why their 'miraculous economic recovery' crashed and burned. They see right through this sort of thing- fresh hindsight is helpful to do that.)

    There's nothing about this situation that is good unless you are convinced of one of these things:

    • pyramids expand forever
    • money is so hypothetical that it needn't _ever_ be associated with tangible assets
    • the future can't be other than the present, no matter what.
    The first is just dumb- if you believe that why aren't you becoming wealthy off a thousand idiotic spams? They are pyramids too. The reality is that you'll lose your money. So, too, with MSFT and Cisco.

    The second is cute- very cute. Isn't having a 27 million dollars going to be enough, by definition? Well, wouldn't having 27 million Deutschemarks (better yet, Reichsmarks) be enough? There are plenty of Germans who can tell of times in their history when that would have just about bought a loaf of bread. A currency can be devalued to amazing, absurd levels- if everybody had 27 million dollars of *insert stock here* but no actual assets other than this, boom, suddenly it takes 27 million _US_ dollars to buy a loaf of bread. It _can_ happen here.

    Finally, the idea that the future must be the same in kind as the present- just an extrapolation of it- is seductive but doesn't stand up to real-world experience. Some days it's sunny and others it rains. If it's sunny a _whole_ _lot_ does that prove that rain can't happen? If termites are eating the foundations of your house there will be a long period where nothing visible happens. Does this mean nothing will ever happen? Some processes happen out of sight of those who don't want to look at them. Termites would be one. In the context of MSFT and Cisco, the process would be a devaluation of money (inflation) caused by these stock pyramid schemes- the amount of 'money' being 'paid' goes up and up and up, but the amount of work being compensated doesn't. As the process accelerates and expands it becomes more exciting the farther it departs from reality. Look at AAPL for a picture of reality- temporarily swept up with the stock market, an earnings warning (and a profit is still anticipated!) 'corrected' the stock down to where it is barely in excess (or under?) the company's tangible assets! That was a brutal over 50% crunch- and stopped only because the price/earnings ratio hit the bottom stop and the stock ended up right down at the valuation of Apple's substantial physical resources and positive revenue. What happens when MSFT corrects and seeks _its_ level of physical resources and actual revenue? In 1999 they _lost_ ten _billion_ dollars and made it up solely by issuing more options! This is major, major trouble waiting to happen. I would have to really _protest_ the notion that it is 'good'. Are you a 'faith stockbroker', like a faith healer? Or is it a new religious movement professing faith in the ever-extending pyramid? Maybe you could make a stock out of this belief alone, and sell it based on no revenue or business at all, just that it will increase forever. I suggest 'JMST', to stand for Jamestown :P

  • Because due to previous limits and freezes on property taxes (especially the infamous proposition 13), the public school system in California is going bankrupt, and Cisco wants an educated workforce and market in California.
  • There is an entire category of companies that don't pay taxes on profits, they're called S-corporations. Profits (or losses) flow throw to the employees and the employees pay income tax on the profit or deduct the losses. Many tech start-ups and medical group practices use this form of incorporation. However, even S-corps still pay federal, state and local taxes. They pay the employers contribution to social security, medicare, unemployment taxes at state and federal levels, health care taxes (in some states), property taxes, personal property taxes, sales taxes and use taxes. Even M$ and Cisco pay all of these, so the government still ends up with a lot of $.
  • by the_quark ( 101253 ) on Monday October 09, 2000 @02:36PM (#719963) Homepage
    Although it is nice from a tax perspective. Here's the logic behind the way it works:

    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.

  • It's not really the laws, but the court cases. The true test of a law is how it gets interpreted by the legal system, and in what part of the country. Interprtation of laws differ from state to state and throughout diferent circuits of the federal court system.
  • There should be a federal tax on money paid to accountants, like a sales tax. Then companies would have to pay at least some tax when they hire a kajillion high-priced accountants to fiddle the books to negate their income tax obligations.
  • Does the percentage matter? The important problem is not how hard the rich are being hurt. The important question is how much our government can be hurt by them. If they're paying 50% of the bills, they hold 50% of the financial sway over the government. Now, if they were 20% of the people there would be no worry; I don't even believe that 5% is that much of a worry. But watch as the numbers go down!

    This country is not exactly a plutocracy; it's ruled by the press and the legislature, and both of those are at least superficially controlled by the people.

    I do agree with you on the limits, though. I find that very reassuring.

    You talk about a "much uglier kind of social change." It's typical of liberals (which you clearly are) to consider the crimes of the poor as much uglier than the crimes of the wealthy, as though wealth washed away sins. A system which twisted the balance *that* way would be just as badly out of whack as our current system.

    Fortunately, there's a good amount of territory in between the two extremes. A system doesn't have to be hyperregressive in order to avoid being hyperprogressive. I'm not going to even suggest what the correct amount would be -- but I will suggest that the current amounts need to be backed away from a bit.

    But they won't be, of course. The rich have every reason to want more power; the middle class have every reason to want others to pay; and the poor don't care.

    -Billy
  • by Anonymous Coward
    If you want the benefits of government, then you should pay taxes.
  • Thanks for pointing that out - the article fails to elaborate on that. The scandal isn't that these companies are getting out of paying federal income tax. After all, options are just another form of compensation, and thus a deductible expense. The real crime here is that they don't have to deduct them against their earnings reports, thus duping the uninformed investor as to their financial health.

    The professional investors know how to get information about option expenses and deduct accordingly before making a value judgement about a particular stock, but for the everyday investor this amounts to a gross misrepresentation about a firm's profitability. Every once in a while you hear about the SEC threatening to change this provision, but it always seems to end up in the dumpster. Anybody have info on where the issue stands now???

  • Well, the way AT&T [yahoo.com] has done lately, they'll both have a nice deductible capital loss!
  • It was hard to tell from the article, but it read like they are taking a tax credit, not merely a deduction from their gross income.

    Suppose there's a 10% tax rate. Then on $10,000, they'd pay $1,000. A $1,000 deduction would make making taxable income $9000, and they'd pay $900. A $1,000 tax credit would wipe out their taxes completely. The key question, qhich the article FAILS to address, is whether or not it was a tax credit or a tax deduction. In this case, I'd say deductions are fair; credits are not.
  • Of course the governent lets this "abuse" happen. It's profitable. Currently, that "untaxed" income is flowing to California employees, most of whom are in the top tax bracket of about 44%. (39% fed + 9% CA state inocome tax. Yep, the numbers don't add...don't ask).

    The highest corportate tax rates are typically in the 30% range.

    Now, clearly, the thing to do is to tax this "abuse" and continue to tax the employeess.....
  • Actually, the BC government wasn't offering anything. BC wasn't in negotiations with Microsoft to try to get them to move up. It was all rumour and innuendo.
  • by mati ( 114154 ) on Monday October 09, 2000 @02:50PM (#719996)
    While I agree, it would follow that corporations shouldn't be able to contribute money to political causes or be named as an entity in lawsuits. The fact is, corporations have been treated increasingly like people for the last century or so, allowing them undue influence over our government and letting individuals get away with atrocities by hiding behind the corporate umbrella. So vote Nader (and I think Browne would agree on ideological terms too).
  • I'm shocked.

    Truly, deeply shocked.

    Wake me when the revolution is over.

  • First off, thanks for being polite in your response. Unfortunately, it was hard to read even though it looks like you took the time to quote and respond. The evils of HTML and lack of P tags strike again...

    Government cannot grant rights, they can only grant privileges. All the rights enumerated by the Constitution you already possess with or without the actual paper

    Sorry, but I don't buy it. Who says I am born with any rights. It's a philosophy and morality only, and requires something to back it up. Why do I have any more rights than a feed cow? Society grants me those rights because it's in the best interest for that society for that to happen. We also learn morals while growing and that helps perpetuate the idea (thank God) that we are born with rights.

    As far as the government being self-supporting, I don't buy that either. When the U.S. constitution was written, the U.S. and the world was mainly an agrarian society. Things are a bit more complicated now. Back then, if you didn't have a job, you could work a bit of soil and at least feed yourself. Not possible these days. Back then an invading force had to basically fight their way in a foot at a time, today you can eliminate an entire city with a small-yield nuke. Back then you only had dirt roads between towns and very little travel between them. Today it takes 30 million U.S. dollars to build a bridge over a congested intersection so people don't collide into each other heading to the shopping mall and a billion dollars and 10 years to build a 60-mile limited access highway to move people up and down a small state (actual figures from my state).

    As for my example of drug lords in Colombia (thanks AC for the spelling correction), that was just an example. Without government and police, it could well be someone trafficing in 13 year old girls on a slave market.

    Weave's things to ponder:

    • We are animals
    • Humans are evil by nature and require a controlling force to keep them in line and a traditional of moral upbringing to implant a conscience.
    • Government is a necessary evil
    • Societies where government collapses quickly turn into a lawless anarchy until some other form of government takes power and stabilizes it again
    • And as for the U.S. two-party system...
      • The Democrats exist to legislate what you do!
      • The Republicans exist to legislate what you think!

    Have a nice day! :)

  • That's funny...the social conservatives are the ones pulling their kids out of public schools and enrolling them in private schools or homeschooling them so they will get a good education. It's the teacher's unions and bureaucrats that want to keep shoveling money into the current broken system.

    That's highly annoying when you just want a bunch of followers who you can lead around by their noses, or expect them to keep out of trouble when you don't have anything for them to do.

    Actually, that sounds more like the core Democratic party to me. Get people dependant on the Govt and use them to deliver votes. Ken Hamblin has a nice colorful term for these people: Poverty Pimps.

  • If these companies had made a bazillion dollars last year and put it in the bank, they would have been criticized for: ripping off the masses, ripping off their employees, ripping off society and on and on and on. But they would have paid taxes to our favorite uncle. And we all know how wisely he would have spent it.

    Instead, they paid all the profits out to employees (who paid taxes on that money) and these same employees get to spend it any way they want. Now MSFT and CSCO get raked over the coals for not paying any taxes.

    Does anyone out there have any *constructive* criticism?
  • Thanks for the kinder reply. You'd think that for a Math major, I'd understand this type of stuff better. Well, not really.
  • I don't like the way a lot of people are wording this.

    Corporations don't "give you" stock. It is accepted as a form of payment, for services one provides to the company.

    Microsoft isn't "losing" $90,000 in your example. They are expecting to recover that through work done by the employee.

  • Ok. First, corporations DO pay taxes. Second, the shareholders pay taxes on both capital gains and dividends. (That's called getting taxed *TWICE*). Third, empirically speaking, the revenues they actually DO pay, on *average*, far exceed their costs to society. [You're going to have a really hard time arguing that companies like Cisco consume 1+ billion dollars a year in legal fees and the like]. Fourth, there is little doubt that companies make a positive net contribution to society. Fifth, "Joe Schmoe" pays for very little as a percentage; the top 5% pay for most of it. Sixth, Joe Schmoe's money comes from companies in some form or another (most of it is corporations)....

  • Well, I'm a relatively small-potato at a big software company, and the stock options I got were like, well, when we went public, and I saw what they were going to be worth, I said to my wife, I said "wife, holy shit!".

    True, what I'm paying in taxes scares the SHIT out of me, but then again, after all that, I'm still stinkin' filthy rich beyond my wildest dreams ever. If my parent company pays no taxes, that's fine and dandy for me.

    Kinda ticks me off that Microsoft gets to abuse this loophole for corporate welfare, but, oh well.
  • by William Tanksley ( 1752 ) on Monday October 09, 2000 @02:54PM (#720024)
    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
  • Or are you in favor of taxing the same gains twice?

    Well duh, that's why it's called an INCOME tax - the tax applies whenever anyone (supposedly including "legal entities" like corporations) makes any income!

    How 'bout this, to avoid "double taxation" - eliminate the corporate loophole, make the corporation pay their proper share of the income tax, but allow the employees to get the income from their stock options tax-free? Uncle Sam is still getting his pound of flesh, right?

    Oh right, that wouldn't be a proper application of trickle-down economics - my bad.

  • This is typical Slashdot under-researched proganda
    • tripe
    . The article doesn't even confirm Microsoft's tax evasion. It says that Microsoft "seems" to be avoiding taxes.

    Explain to me how the richest company in the world could jump out of all their taxes, and not have the government up on their ear. This is the same government that shot the company down for monoplistic practices. I'm not a big fan of US taxes, but I do know they nail the people with the most money first. If profit motive is key, MS's millions are far more tempting than Joe Schmoe's couple hundred.

  • by somen ( 241384 ) on Monday October 09, 2000 @02:56PM (#720031)
    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
  • > but I'm pretty sure that a corporation is legally a "person" but not an "individual",

    Yes you're right, Individual is not mentioned anywhere.

    Page 340, 6th Ed.
    "Corporation. An artificial person or legal entity created by or under the authority [dictionary.com] of the laws of a state."

    A created thing owes its existance to its creator.
    Notice WHO creates the corporation. THE STATE.

    Even more interesting is WHY is the Queen of England a "corporation sole" ?!

    Pg 341.
    "Aggregate and sole. A corporation sole is one consisting of one person only, and his successors in some particular station, who are incorporatated by law in order to give them some legal capacities and advantages, particularly that of perpetuity, which in their natural persons they could not have had. In this sense, the sovereign in England is a sole corporation, so is a bishop, so are some deans distinct from several chapters, and so is every parson and vicar."

    Now you know who REALLY owns the land, and the reason you don't see too much land in Allodium.

    Cheers
  • > If this corporation of yours go bankrupt, what happens? Are you liable to repay any outstanding debts? No. Because the Corporation was in debt.

    Correct. There is a reason most companies are a LLC (Limited Liability Company.)

    Companies have not been around that long - only a few hundred years. Trusts have been around for a few thousand. Same principle. People want to judgement-proof themselves.

    Cheers.
  • Yes, you could live with it -- and so could I, if I were. You seem to have missed the point, though; the question isn't whether people will *complain*, the question is whether they'll use their financial power to consolidate political power into their own hands.

    They're already bad enough with financial power. What will they be like when they have all the vote as well?
  • Whether we like "big evil corporations" or not we must keep one thing in mind: without them we have no job, no food, no infrastructure and not even a slashdot.

    Hardly. People would survive just fine without big corporations. You'd just end up with more individuals and small-to-medium sized businesses making a living. I seriously doubt that jobs & food would be any worse off than currently.

    The things that would be different would be: 1) stuff which requires insane amount of capitalization, such as massive chip-making foundries or huge construction projects - probably only the government would be able to afford stuff like this, and 2) the "mass" media would probably be a heckuva lot more diversified, since you wouldn't have the "homogenizing" effect that a large corporation would have.

  • Well, say I pirate Windows98, and it comes with IE 4.0, as we all know. Being a web surfer, I become a statistical support to the notion that IE 4.0 is the dominant web browser on the network (a value proposition for Microsoft, even if they didn't get my $99 for the Windows98 CD). Now, web sites everywhere start believing that the effort to design websites to be Netscape-friendly is too expensive for the other 5% of the surfers out there, so they omit that effort. Causing even more incentive for new computer buyers to buy Windows98, because they'll get IE and be able to surf this one more site. Does Microsoft get taxed on the copy I pirated because of the way it benefits them?

"The identical is equal to itself, since it is different." -- Franco Spisani

Working...