Thompson Fights to
Eradicate Tax Penalty on Public Servants
Thursday,
July 11, 2002
Washington
,
DC
- The Senate Finance Committee today approved an amendment,
sponsored by Senator Fred Thompson (R-TN), that reduces a
financial burden many presidential appointees face when they
are required to divest their stock options as a condition of
taking public office. The Thompson provision, which was
included in the National Employee Savings and Trust Equity
Act, removes the tax penalty on public servants by expanding
the current certificate of divestiture program to include
stock options under Investment Stock Option plans (ISO) and
Employee Stock Purchase Plans (ESPP). Appointees can already
be granted certificates when they sell shares of traditional
stock.
"It is unfair to penalize willing
public servants for complying with the law," Thompson
said. "Especially now as we continue to fight a war on
terrorism, we must work to ensure that the best and brightest
of the nation’s leaders continue to be attracted to public
service, instead of constructing blockades to discourage them
from serving their country."
Conflict of interest statutes and ethics
laws prohibit high-ranking government officials from holding a
stake in companies that may be affected by their decisions.
Therefore, many public servants are required to sell
significant stock holdings before they can enter public
office, regardless of their personal investment plans.
Unfortunately, this can place a heavy tax burden on them
simply for obeying the law.
To mitigate this penalty, Congress passed
the Ethics Reform Act of 1989. This law contains a provision
which allows ethics officials to grant a certificate of
divestiture to appointees who are required to sell stock when
they enter office. This allows the appointee to use the
proceeds from the stock sale to purchase an approved
investment without the immediate penalty of capital gains tax.
The tax is deferred until the appointee decides to sell the
approved investment holdings.
However, the certificate of divestiture
program does not currently address ISO and ESPP stock options,
which have become a common part of many corporate compensation
packages. When appointees are required to divest their ISO or
ESPP stock options without meeting the holding period
requirements to obtain capital gains treatment, the gain on
the sale is taxed as ordinary income, and not capital gains.
The provision sponsored by Senator Thompson would expand the
certificate of divestiture program to include all ISO and ESPP
stock options.
"This
amendment will end an unfair financial penalty on presidential
appointees. While these top officials should always be held to
the highest ethical standard, they shouldn’t have to pay
heavily to get their jobs. We already have enough problems
filling government’s top posts; we can do without this one.
Today’s vote is a step in the right direction toward fixing
the broken presidential appointments process," concluded
Thompson. |