Something New Every Day

One way corporations avoid taxes, from Jason Linkins' as usual stellar liveblog of the Sunday talking heads so we don't have to watch.

McCain says that American businesses pay high tax rates. One of his examples: "Ask John Chambers, CEO is Cisco," and he'll tell you that he pays 35%. KNOW WHAT JOHN MCCAIN? If you ask, here's what you'll find out (via Dan Ancona):

Cisco Systems, the second-most valuable company in America, paid no federal income taxes for its latest fiscal year thanks to a little-known corporate tax break on employee stock options.


Microsoft, which ranks No. 4 in market value, did not pay any federal taxes either, it seems.

Like many high-tech firms, Cisco and Microsoft are allowed to take a tax deduction for money their employees earn when they ``exercise'' options and buy stock in the company at a preset price.

These options have become an increasingly popular way for businesses to reward employees, but they also have huge benefits to the companies themselves.

The tax break was established decades ago, when companies doled out stock options to only a handful of top executives and the tax benefit they generated was minimal.

But now that many companies -- including Cisco, Microsoft and most other new-economy firms -- give options to everyone, the tax break is becoming enormous.

In Cisco's case, this benefit wiped out $1.8 billion in federal taxes, and probably more than twice that for Microsoft.

Some people, even those who oppose taxes, think it is unfair that wealthy companies paid none to Uncle Sam.

For the fiscal year ended July 31, Cisco had $23 billion in sales last year, $2.7 billion in net income, and its almost $400 billion market value is exceeded only by General Electric's.

``For a company that makes that kind of money not to pay taxes raises serious tax-equity questions,'' said Jon Coupal, president of the Howard Jarvis Taxpayers