Thursday, March 4, 2010

Bravo Jim Flaherty......almost?

Well I am pleased to see that Jim Flaherty is heeding my wise advise now that executive stock options are going to be taxed in Budget 2010 as income from employment rather than as capital gains. I have been making this suggestion now for over two years and have blogged about it over 64 times beginning first in July 2007 and have made the point whenever the opportunity presented itself, as such an arrangement is grossly unfair and only serves a policy outcome that is adverse to society at large by having taxpayers subsidizing a form of compensation that is at the core of most corporate abuses, including being at the core of the global financial meltdown. As long as executives get their compensation on terms that are misaligned with shareholders and society at large, they will continue with their abusive ways. Changing the taxation of executive stock options will not change this dynamic, only their elimination will, but at least we don’t have taxpayers subsidizing this misaligned and grossly unfair form of executive compensation.

Its too bad the Liberal Party didn’t take ownership of this issue as I recommended to John McCallum back in a public meeting in Toronto in April 2009 that they should. I blogged about that in a piece called “Two POPULIST tax revenue increase measures for the Liberals”. In fact I have been giving lots of sound advice to the Liberals that they haven’t being taking full advantage of, including getting behind the Marshall Savings Plan in a big way. There are only so many good opportunities like this that you come your way to show Canadians that you have their interests at heart rather than Bay Street's and/or the CCCE, before people begin to wonder.

Jim Flaherty and all Canadian taxpayers can thank me for pushing this idea for so long along with the fairness that it will bring to a grossly unfair tax system and the over $1.66 billion in tax revenue that it will generate, more had Flaherty implemented the policy properly.

My bravo for Jim Flaherty going with my long standing suggestion to commence taxing stock option gains at 100% rate of inclusion into income, rather than 50% inclusion is qualified by the term “almost” because Flaherty did not go far enough, as he is only talking about this form of treatment for those earning more than $500,000, which still means that he hasn’t dealt with the fundamental issue of fairness, but has introduced a loophole, while claiming he is closing a loophole. What possible difference does it make how much your base salary is in order to justify taxing these employment earnings as employment income, rather than capital gains? A base salary of $500,000 is enough to drive a truck through. Investment bankers working on Bay Street making millions of dollars a year have base salaries of less than $150,000, so the question becomes why has Flaherty left this huge barn door open, and who is he trying to let through?

Meanwhile for Flaherty to grant this type of advantageous tax treatment to the employment income of workers at the cost to taxpayers, means in effect that taxpayers are subsidizing the employment costs of corporations, as less compensation is required if the dollar of employment cost, feels like more in the hands of the employee, and therefore taxpayers are in effect paying the cost of corporations overhead and admin. This hardly makes any sense whatsoeverm but it is Jim Flaherty we are dealing with here, and why should taxpayers be burdened with the cost of a corporation’s salaries, when Flaherty is cutting corporations tax rates at the same time?


Anonymous said...

But at the same time Jimbo walked past the 2.5MM jobs and $6bn in tax revenue that is the Marshall Plan, like he just doesn't need or want it. There's a point where ideology just turns into stupidity, and we're waaaaaay past that.


Dr Mike said...


Getting Jimmy to do the right thing has about as much chance of success as me hoping my cat will fetch me the morning paper.

Jim either really hates trust investors or he just does not want to go there out of fear of opening his ridiculous can of worms again.

At least my cat Kate lets me share her meow Mix.

Dr Mike Popovich

Anonymous said...

Good for u Brent

Diane Francis

Sent from my BlackBerry device on the Rogers Wireless Network

CAITI said...

Thanks Diane! Flaherty’s are only half measures and short sighted in nature. If I had been Finance Minister this would have been my top agenda item at the Artic G7 Finance Ministers meeting, since my suggestion remains as per this:

What Obama should do if he’s serious about Wall Street Reform
Friday, January 15, 2010



Anonymous said...

Brent – I congratulate you. Your idea of closing the hole on Stock Options being counted as capital gains vs income seems to be closed. Those high paying executives can now hate Harper and Flaherty just like the rest of us that got lied to and had our money stolen when they changed the rules on income trusts after PROMISING not to.

Mike G