Options Tax Treatment Reminds us of Broken Incentives

From today's "But NObody Pays That" post on tax treatment for corporattuibs and the wealthy, those who can afford to manage their income for strategic tax avoidance:

“These options gave executives a highly leveraged bet that stock prices would rebound from their 2008 and 2009 lows, and are now rewarding them for rising tides rather than performance,” said Robert J. Jackson Jr., an associate professor of law at Columbia who worked as an adviser to the office that oversaw compensation of executives at companies receiving federal bailout money. “The tax code does nothing to ensure that these rewards go only to executives who have created sustainable long-term value.”

Yes, a highly leveraged bet.  Yes, paid off on the rise in stock prices  and yes rewarding execs who may or may nor have creted susainable long term value.  Thjose are all true.  I think the article unfarily targets Mel Karmazin, whose tenure with the embattled SiriusXM represents management of significant risks.  The mechanics of rising tides - which governemtns world-wide have been instrumental in rising -  do lift all boats, and it is troubling that we need the tides to rise in order to have the appearance of investor confidence.  As the markets freak out time and time again, what goal are we amanaging toward? Are we managing for value?  For whom?

The (mis)alignment of US Tax policy, compensation incentives, and the martket should not be an indictment of Karmazin or others like him.  The critique of the market and the way the few are able to profit from its gyrations remains. But let's examine our need for the apprarance of stability and confidence, for the appearance of growth?  Stroing products, made over the long term, producing customer value, are the way out, not the feckless consumption of lattes and Barbie dolls on credit.  It's a sad and despareate fact that we all need the market to appear to rise- and bailed out the global financial system to ensure it.

According to the Senate Joint Committee on Taxation there is $25 billion in revenue for the treasury at stake with these deductions - and the implicit subsidy from US Taxapayers to employers who use options for compensation is no fun at all. Balancing the budget probably won't happen a nickel here, a dime there - let's face it, $25 billion over 10 years is a drop in the bucket of trillions - but aligning the tax code in more productive ways could certainly help.