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ECFFSOA?

October 01, 2007

Congresscritters have a bad habit of giving their tax bills grotesque names that produce a lame acronym. Who can forget the "National Employee Savings and Trust Equity Guarantee Act" - "NESTEG"?

So what's with the "Ending Corporate Favors for Stock Options Act"? ECFFSOA? That sounds like something a Senator would say with his mouth full at a lobbyists hor's d'ourvres counter. If you don't even get a pronouncable acronym, why go with a tortured name?

This awkwardly-named bill would place more restrictions on deductions for executive compensation - in this case, just for stock options. The current $1 million deduction limit for cash compensation is arguably a major factor in the 1990s stock option frenzy and the resulting option backdating scandal. Daniel Shaviro analyses the proposal:

Even if you like the $1 million limit, and few people do, this is just silly. All one needs to do to avoid it is have a virtual stock option instead of a literal one. E.g., you have performance-based compensation that pays you off based on the stock price, but it isn't called a stock option despite having identical economics.

Read the whole thing.

Tags: stock options.tax policy.