Mark Zuckerberg won’t “Like” this: Two Senate committee chairmen introduced legislation on Tuesday to raise revenue by closing tax loopholes, including an increasingly notorious loophole that could save Facebook billions of dollars in state and federal taxes.
Senate analysts say the “stock-option loophole,” as it is known, will wipe out Facebook’s entire federal and state income tax bills for 2012 if it is not closed.
And because it can be retroactively applied to previous years and carried forward into the future, the tax break could relieve the social-media giant of paying taxes for “a generation,” says Sen. Carl Levin, D-Mich.
Levin, who chairs the Senate Armed Services Committee, and Sen. Kent Conrad, D-N.D., who chairs the Senate Budget Committee, introduced the legislation. It would raise $155 billion over 10 years without any increase in rates by cracking down on offshore tax shelters, repealing tax breaks that encourage firms to move jobs offshore, and closing “egregious” loopholes, Levin says.
One of those tax breaks is the stock-option loophole. It allows corporations that pay their executives with stock options to claim a deduction that is greater than the expense carried on their books. It costs the Treasury some $20 billion over 10 years.
Though Facebook cofounder Zuckerberg may have to pay some $2 billion in personal income taxes when he exercises his $4.8 billion in stock options, the current tax laws will reduce his firm’s tax burden by $3 billion, according to the watchdog group Citizens for Tax Justice. And according to Facebook, the firm could qualify for a tax refund of “up to $500 million” from past years.
“There’s something obviously wrong with a tax loophole that lets highly profitable companies make more money after tax than before, ” said Robert McIntyre, who heads Citizens for Tax Justice, in a column on the organization’s website.
Levin said closing tax loopholes is “the key which has not been turned” in finding funds for a payroll-tax cut and for long-term deficit reduction. The “longstanding festering abuse” of the tax code should be closed as a matter of fairness alone, the senator said.