Tax Guru-Ker$tetter Letter
Saturday, July 20, 2002
Getting To The Bottom Of The Stock Market Problems
Two different analyses of the underlying reasons for the recent drop in the stock market.
A satire, with an element of truth:
Stocks were dropping precipitously last week as investors realized that corporate leaders, thought to be working for the good of humankind, were actually busy trying to make a lot of money for themselves.
The serious truth:
Stock options were not a new development in the early 1990s. However, they became a much more important part of corporate compensation plans as a direct result of the Democrats' exploitation of class envy by disallowing any tax deduction for salaries of corporate executives of more than one million dollars per year. As always, the Dims exempted this rule from applying to their leftist pals in the entertainment industry.
As always happens when tax laws are changed, people and companies change their behavior in order to minimize their personal pain. Stock options as an alternative to salaries over a million dollars were as natural an answer as any I can think of. Because stock options are worth more based on the market value of the stocks, executives often took shortcuts (aka creative accounting) to give the investment world the false impression of higher profitability than existed. It doesn't take a rocket scientist to connect these dots.