Rob Renaud (ru_linux_geek) wrote,
Rob Renaud

Ethics and investing: Is exercising your stock options unethical?

No, this has nothing to do with insider trading.

First, let's start with the premises.

1) Stock options give me a large amount (relative to salary) of deferrable taxable income. If I have stock options worth $x today, I could exercise them for $x. Or, I could, next year, also exercise them for $x next year (or $x * risk free rate of yearly return). This is definitely a simplifying assumption. It could very well be the case that next year they will be worth $0, or 2x, or 3x. Still, I will ignore the risk/return, because that's just money and it makes things complicated. This is an ethical argument instead of a financial one, after all.

2) I don't have an immediate need for the money earned from the stock options, it would just be invested in a different form if I exercised them.

3) This stock options will represent a very sizable amount of my taxable income, if I were to exercise them.

4) I disagree strongly with the way the current government is using my taxes. To be absolutely naive, assume that the government will kill X innocent people, that my current contribution to from taxes for the year was Y, and that the governments total tax income is Z. Then my innocent death contribution coefficient is XY/Z. For Y << Z, any change of factor K to my taxable income results in a change of K to my innocent death contribution coefficient.

5) It is possible that the government will change its policies so that they will not be so disagreeable while I am still holding on the options.

Does it then follow that exercising my options is unethical? I think so. Will I still exercise if my options go through the roof? Probably ;(.

Possible objections:

The government doesn't care how much money it takes in from taxes, it will just cut funding from other places instead. That is, say, killing innocents has total priority over educating the children. If the government made $1000 less, then they would spend no less on war, only $1000 less on other programs. Though I think that this is somewhat true, the war is being financed on lots of debt after all, I still think that marginal tax income contributes to war spending.

Even if the government will spend more money on war, it doesn't follow that more people will necessarily die. For example, if there were twice as many soldiers, maybe the soldiers themselves could each be less vicious, resulting in fewer net civilian casualties. Given, I don't know enough about warfare (other than marines are effective against zerg, ;) ), to know how much merit this argument has, I still tend to believe that aggression begets aggression.

If I really believed my conclusion, then there are ways beyond simply not exercising stock options to reduce taxable income that I should be using. I could donate money to charity. Continuing this logically, I could donate all of my income beyond my cost of living to charity, so that it is not taxed. I could then lower my cost of living, to then spend less money on taxes, to lower my innocent death contribution coefficient. Since I don't sacrifice savings from my ordinary income, If I believed it was immoral to exercise options during an unjust war, it then follows that it is evil to save during an unjust war. Hence, by contradiction, I don't really believe in my conclusion that exercising options during an unjust war is immoral. This is somewhat true, I am certainly not sacrificing ordinary savings to avoid taxes. On the other hand, the key premise was that the income is deferrable. If I could defer my excess salary to a time of peace, I believe I would.

My total tax contribution is insignificant relative to the whole, hence the results decisions won't change either way. If I didn't pay any taxes, the military budget would be unchanged except for by a very, very small amount, and the exact same military result would occur. I have two objections to this objection. First, if it is insignificant, does that mean that I don't have to pay it? :). Secondly, and more seriously, I don't believe in this kind of reasoning. With probability approximately 1, my vote won't change the outcome of an election, yet I still vote. I believe the world would be better if everyone behaved this way, and hence I do.

Dude, you are nuts. Yes, this one is probably true.
Tags: ethics, money, options, stock, taxes, war

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