Senators Introduce Bill That Increases Tax on Stock Options

Senators Carl Levin (D-Mich.) and Sherrod Brown (D-Ohio) introduced S. 1375, which would require companies to use the same value for their options on both their books and their tax returns. Senator Levin noted that current law allows companies to use different stock option valuation methods on their income statements than on their tax returns (companies expense options on their income statement based on a present value estimate at the time of grant but take a deduction for the actual value of the tax-deductible spread at the time of exercise). Companies use a method that creates a higher expense for tax purposes, which Levin called a "tax subsidy," and claimed the bill would generate $25 billion for the federal treasury over the next 10 years.