New York Times Tilts News On Taxes, Again

When you read a liberal-leaning paper like The New York Times, you have to expect the opinion pieces to tilt a bit to the left.

So I was not surprised recently when a Times writer referred to the treatment of a well-established form of executive compensation as an “obscure” provision “buried in the tax code” that “will deprive the federal government of tens of billions of dollars” while delivering a “windfall” to corporations.

Unfortunately, I was also unsurprised that the article containing these phrases was not an opinion piece at all, but a page-one story presented as straight news. The article, by David Kocieniewski, was headlined “Tax Benefits From Options as Windfall for Businesses,” and appeared on page A1 of the New York edition of the paper on Dec. 30 as part of a series called “But Nobody Pays That.” (1) More details please

The Times has a long tradition of skewing its tax coverage toward the thesis that corporations and “the rich” pay too little, while everyone else pays too much. I have made pointing out the Times’ mischaracterization of tax laws a tradition of my own.

Back in 2001, I critiqued the reporting of then-Times writer David Cay Johnston. As a beat reporter covering taxation, Johnston regularly failed to include opposing viewpoints and misrepresented partisan and other highly interested groups as sources of objective information. However, he won a Pulitzer Prize for his work. At the time, I expressed concern that awarding the prize to Johnston would propagate the idea that his work was the epitome of good reporting and would encourage other journalists to follow in his footsteps. Kocieniewski’s current coverage appears to substantiate that fear.

I don’t think the Pulitzer panel intended to reward politically tinged journalism, and Johnston may not have intended to produce it. In fact, when I requested a comment while researching my critique of his work, he wrote a lengthy letter in response saying as much.

However, since then, Johnston’s work as a columnist for trade publisher Tax Analysts and for Reuters has revealed that his opinions do indeed align with the apparent biases in his earlier news coverage. In a recent Reuters blog entry, for example, Johnston wrote that lobbying and limited campaign finance laws produce a “powerful formula for making rules that favor corporate interests over human interests.” Reuters clearly labels Johnston’s work as opinion, noting in two separate places that the views expressed are his own.

While Johnston belatedly found a niche as an acknowledged pundit, back at the Times his legacy has prompted other writers to confuse hard-hitting coverage with hard-headed coverage. Kocieniewski’s series has “Times Pulitzer Entry” written all over it.

“Tax Benefits From Options as Windfall for Businesses” discusses the tax treatment of stock options. The article starts with the fact that executives are starting to exercise, at a profit, stock options granted in late 2008 and 2009 when the market was depressed, and that companies are, as a result, becoming eligible for deductions based on that compensation.

A stock option is a right to buy a company’s stock at a preset price, regardless of the market price when the option is exercised. Kocieniewski uses Mel Karmazin, chief executive of Sirius XM Radio, as an example. Karmazin received options to buy company stock at 43 cents per share. The stock of Sirius XM is currently about $1.80 a share. If Karmazin exercised his options today and immediately sold the stock, he would make $1.37 on each share. In his case, that multiplies out to $165 million.

Not all options, however, are exercised. If the stock’s value drops over time, the optionee would have no reason to buy at the guaranteed, but higher, price. Since options expire, there’s always a chance the stock will not go above the option price during the time when the option can be exercised. Furthermore, options cannot be exercised until they are vested, and many people leave their jobs before that happens.

Options proved useful to companies during the financial crisis because they offered a way to reward company executives for trying to right troubled ships without further depleting cash reserves. Options also gave executives a greater stake in their companies’ long-term recovery, which is exactly what many on the political left have long argued that CEOs need. In fact, options became much more important as an element of executive compensation after Congress imposed punitive tax rules on other forms of salary, bonus and deferred compensation in recent decades.

It would be eminently fair to criticize corporate boards for being overly generous with stock options when the market was near its lows. Most companies whose underlying businesses were sound would not have dreamed of selling stock to outsiders at the low prices that prevailed when the market was at its recent nadir, yet many of those same companies issued large option grants to senior executives. This meant that when the market recovered, huge blocks of wealth were transferred to those executives from other shareholders, who saw their equity stakes reduced.

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