[Congressional Record (Bound Edition), Volume 146 (2000), Part 12]
[Extensions of Remarks]
[Page 16899]
[From the U.S. Government Publishing Office, www.gpo.gov]


[[Page 16899]]

            THE UNIVERSAL EMPLOYEE STOCK OPTION ACT OF 2000

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                           HON. AMO HOUGHTON

                              of new york

                    in the house of representatives

                        Wednesday, July 26, 2000

  Mr. HOUGHTON. Mr. Speaker, I am pleased to join my colleague from 
California, Mr. Matsui, in introducing the Universal Employee Stock 
Option Act of 2000. The bill would add another leg on the stool for 
employee retirement by providing another means of accumulating assets. 
What does the bill do? The bill would add two incentives to encourage 
the granting of stock options to all employees.
  First, the proposal provides for a tax deferred form of employee 
stock options, which are only taxable when the stock is sold--a 
combination of ordinary income and possible capital gain accumulated 
after the option is exercised. The deferral aspect would provide a 
powerful incentive to the employee to hold the stock for the longer 
term. Importantly, the employee pays for the stock, through payroll 
deductions, with pre-tax dollars--not unlike a section 401(k) plan. The 
maximum employee pre-tax contribution to an option plan would be 
$10,000 per year.
  Second, the bill would provide a deduction to the employer for the 
fair market value of the stock at the time of exercise--the exact same 
amount the employee would report as ordinary income when the stock is 
sold.
  The deduction by the employer at the time the option is exercised is 
offset by the ordinary income reported by the employee at time of sale. 
There would be a revenue cost associated with the deferral of reporting 
of the ordinary income until sale, versus the deduction by the employer 
at time of exercise. Of course, any gain to the employee at sale which 
exceeds the ordinary income portion would be taxed as capital gains. 
The bill provides for adequate safeguards and procedures to track the 
sale of stock and reporting thereof to the IRS.
  Why do we need such a change? As article after article has pointed 
out, executive compensation keeps accelerating at a much faster pace 
than regular compensation. The market place will, as time moves along, 
maintain some control over the executive compensation. But this 
proposal is a way to help the ordinary working person.
  In the 105th Congress, I introduced a stock option bill. I believe 
this new bill is an improved version because (1) the new bill covers 
substantially all employees, (2) the total deferral of the tax to the 
employee, plus purchase with pre-tax dollars, strongly encourages 
participation and long-term retention of the stock, and (3) the bill 
encourages employers to offer the tax-deferred compensation in the form 
of stock options by giving the employer a deduction for the value of 
the stock at the time of exercise.
  The approach in this bill is primarily designed to attract the non-
highly compensated employee, and would be an effective way to address 
the compensation gap and provide long-term security for the employee. 
We encourage our colleagues to join us by cosponsoring this 
legislation.

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