In their first annual earnings report since the launch of their IPO, a little noticed but evily genius accounting loophole will allow Facebook to enjoy a multi-billion dollar tax break this year through a tax deduction for the cost of executive stock options and share awards.
Facebook reported $1.1 billion in pre-tax profits from its U.S. operations but will pay zero Federal and State taxes. In fact, they will receive a refund of roughly $429 million.
While there is nothing illegal about companies taking advantage of opportunities provided them via our nation’s swiss cheese tax code it is nonetheless tough to swallow a company as profitable as Facebook receiving a hefty tax refund. For Death and Taxes writer Adam Bajakian, social math was needed for perspective. Facebook’s $429 million tax refund, he writes, cost the U.S. 14,000 teachers:
I was a teacher in the NYC Public School system for three years after receiving my Masters in Education. After [three] years teaching I quit and became a real estate agent, realizing that there was no way I would be able to afford to raise a family in NYC on a teacher’s salary.
So when I see massive tax breaks for corporations like this, it really hits home. I often ask myself, What if this money went to increasing the salaries of public school teachers instead?
After reading last weekend’s New York Times editorial, “The Real Cost of Shrinking Government,” Bajakian applied the message to his piece:
The Gods of Irony struck as I read this New York Times Op-Ed about the sequester budget cuts scheduled to take place on March 1 that will eliminate jobs and services in virtually every sector.
Once the cuts take place, 14,000 teachers will be laid off and 70,000 children will lose access to the Head Start program thanks to sequester cuts to education. The savings? $424 Million.
So now I ask: What good is Facebook really bringing us? Is it worth it to take quality education for that many kids and trade it instead as a tax refund for a social media website? Granted there’s no causal relationship here, but the trade-off does illustrate a stark contrast in priorities.
Stretched equivocations aside, Bajakian’s concerns are shared by millions. Congress can’t carve out a single policy that clearly boosts the economy and draws down the debt, yet a company as big as Facebook is getting an eight-figure gift from the good ol’ U. S. of A. It turns out Facebook’s accounting division may be more effective than their software developers.