Tuesday, December 16, 2008

My fiscal stimulus plan includes taxing employee stock options gains as employment income and not capital gains

Part of any prudent and balanced fiscal stimulus plan involves not just increasing expenditures but also introducing new sources of tax revenue where possible. The taxation of employee stock option as capital gains, rather than as the employment income they actually represent, is without any economic justification and merely represents a form of unjustifiable tax relief for the wealthiest Canadians. Capital gains are taxed at HALF the rate of income, to reflect the fact that investors have capital at risk and to encourage more risk taking/investing by investors in our economy. Neither of these conditions of taking risk or making investments in our economy hold true in the case of gains from employee stock options. There is no risk taking. So why are employee stock option gains accorded advantageous tax treatment at half the rate of tax of the income from employment that they actually represent? This is a hand out to those least in need of a hand out.

Meanwhile many of the monumental abuses we have witnessed on Wall Street and the financial system at large, have been caused by compensation systems that provide undue incentives for outcomes that are often contrary to the public good. So why are these compensation systems that see executives in Canada with, for example $50 million windfall profits from stock options, paying the same rate of marginal taxation as some worker earning $15,000, as both will be paying a marginal tax rate of approximately 23%?

Makes no sense whatsoever. In this fashion, the tax system has being skewed to favour the wealthiest and is being used to encourage and incent practices in the business community that have become of questionable social value. This irrational tax carve out needs to be eliminated in the name of true tax fairness.

1 comment:

Dr Mike said...

I am wondering who has the ear of the gov`t??

Is it the little guy making dick-all who invests & makes a couple of bucks on a gain & gets the capital gains break.


Is it the big shot big business honcho who makes millions off of options as they move the price on a whim & are taxed at the reduced gains rate.

Hmmm , I wonder.

I personally have tried to talk to Flaherty--no dice.

Wonder if a Guy Like Michael Sabia ran into the same gov`t-built brick wall.

Dr Mike Popovich.