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90% Bonus Tax? Way to Destroy Our Economy
Posted Mar 20, 2009 12:56pm EDT by Henry Blodget in Media, Newsmakers, Banking
From The Business Insider, March 20, 2009:
The frantic passage of the Populist Rage Tax was a new low in the US government's response to this crisis. It shows just how likely we are to doom ourselves to a decade or more of misery--by choking our markets, closing our borders, turning our banks into tools of social policy, and wrecking what's left of our economy.
In case you've been too outraged by AIG (justifiably) to notice what happened, here's a recap:
If the "TARP bonus" bill the House passed yesterday becomes law, any of the hundreds of thousands of people who work for Citigroup, Bank of America, AIG, and nine other major US corporations will have to fork over 90 cents of every bonus dollar that puts their household income over $250,000.
That's household income, not individual income. If you're married and filing singly, you'll have to surrender anything over $125,000. Indefinitely.
Is $250,000 per household a lot of money? Sure. But it's not a lot of money for two moderately successful corporate executives. Or a corporate secretary married to a lawyer. (If you're a $40,000 a year telemarketer at a TARP company married to a $210,000 lawyer, any bonus will be taxed). So this tax will be felt by a lot more than the handful of execs at AIG and Merrill who ran off with several million dollars apiece.
But that's not the really distressing part. The really distressing part is what this tax will do to the corporations that we now own and are supposedly trying to save.
(Remember? That's the reason we bailed Citigroup, AIG, GM, and the rest of them out--to save them. Because we convinced ourselves that civilization would end if we didn't.)
Thanks to our stupidity bailouts, we now own major stakes in these firms--at mind-boggling expense. So it's not clear why we want to destroy them. But that's what we seem determined to do.
Believe it or not, hidden inside these companies are thousands of decent, competent people whose households bring in more than $250,000 a year. Many of these folks had NOTHING to do with the gambling addiction that bankrupted their firms. Many of them still have a choice where to work. And now that they've learned that their family's pay will be capped at $250,000 indefinitely, many of them will quickly decide that now is a good time to pursue their careers elsewhere. (That is, unless their firm takes the easy and obvious step of just paying them a fatter salary, which just renders the whole thing a farce.)
Will everyone leave these firms? No. The folks whose households don't have the education, desire, ambition, skill, or time to make more than $250,000 a year won't. But a lot of the rest will. And however little our massive investments in these companies are worth now, they will soon be worth a lot less.
The real lesson here, unfortunately, is that it's a disaster for the government to run private companies. We used to understand that. But ever since we started telling ourselves that we had to save bankrupt institutions by taking them over and pretending not to "nationalize" them, we have apparently forgotten.
See also from The Business Insider:
1432 Comments
Gusserson - Friday March 20, 2009 11:10AM EDT
If you don't like it, leave. It's really that simple.
__A_YAHOO_USER__ - Friday March 20, 2009 11:13AM EDT
Uhhhhhhhh if it's a 'TARP bonus tax', how does it apply to the rest of us? We aren't getting any of that money. I don't care if a CitiBank secretary gets taxed on 90% of the money. If she's making over 125K a year, she's bloody OVERPAID! I think what the government is saying is "IT'S NOT YOUR MONEY!". Now.... if they try to extend it over to the rest of us, then we have a legitimate complaint and will correct them quickly, trust me. Where were all these workers when this crap was going on? When their companies were destroying WORLDWIDE economics? Where were the whistle blowers in those companies? Even the Enron employees eventually squealed. But not the damned banks! Oh no, faithful to the end! Which is exactly where they would all be if the TAXPAYER hadn't bailed them out... at the end. They would have failed. We probably should have let them. But we rescued them and by all in heaven and on earth, they WILL NOT give their damned executives bonuses on OUR money! Even at 90% over 125K, THEY still have jobs!!!!!!! Many people don't because of the way they conducted their businesses. No sympathy. None.
donfurio - Friday March 20, 2009 11:14AM EDT
Wow I acctually agree on something with Blodget. This is the worst legislation I have ever seen. People are leaving BAC in droves.
Yahoo! Finance User - Friday March 20, 2009 11:14AM EDT
I'm all for it. Most bone-uses are undeserved/unearned anyway. Especially for those companies that got bailout money. Get our money back!
Yahoo! Finance User - Friday March 20, 2009 11:14AM EDT
is this not just a tax on the bonus? if they earn 250,000 and want more, they simply need to get a higher salary
Rick - Friday March 20, 2009 11:15AM EDT
I think it makes sense. I'm never going to be making $250,000 a year in my house hold and that is alot of money to live on. I think its a good idea. Heck I would be happy making $100,000 for my household which isn't going to happen anytime soon.
Yahoo! Finance User - Friday March 20, 2009 11:16AM EDT
I thought that this was specifically written so that only companies owing more than $5 billion in bailout money was affected. It would apply to any such bonuses issued since Dec. 31. So a person who gets 1million in base pay and no bonus would not be affected. Once this bailout money gets paid back then they can do what they want. As long as my tax money is being used, forget these bonuses. If a person can't get by on $250k a year, that is there tough luck.
Yahoo! Finance User - Friday March 20, 2009 11:17AM EDT
Finally! Someone who sees this for what it truly is. If this does pass, maybe we can get a 90% tax on all the bribes that our elected offcials take on a day to day basis. Maybe then we can get FAIR representation and actaully fix problems, not cause more.
Yahoo! Finance User - Friday March 20, 2009 11:17AM EDT
Those people who got bonuses won't leave their jobs. Get real. Where are they going to find new ones? Lame excuse.
Yahoo! Finance User - Friday March 20, 2009 11:17AM EDT
Can't wait to see next year's 1040. If you're name is "Hank Greenburg" enter $2,000,000 in box 46b. Gary B Smith is right. Buy HR-Block.
hra2514 - Friday March 20, 2009 11:18AM EDT
At the rate the congress is going lately they are sure to destroy this economy. Unfortunately the house and Nancy Pelocy have no idea what to do to help the economy. They only know hod to lwead this country into socialism and couldnt care what happens in the mean time
Haitao - Friday March 20, 2009 11:19AM EDT
should blame the shameless financial employees who accepted bonuses from other people's tax money. Maybe the writer is one of those who got millions of bonuses for failing a job.
Blink - Friday March 20, 2009 11:21AM EDT
I am pretty sure this applies only to those companies that are using tax-payer dollars to support their bad decision making. I am pretty sure this is a very small percentage of public companies. As for destroying our economy? One need not look past the greedy banks and insurance companies creating "risk-free" ways to invest our money and blow smoke up our @sses. You say it is a "disaster for the government to run private companies," and we all see the disaster for individuals to do so unregulated. So who is right?
Allan - Friday March 20, 2009 11:21AM EDT
If governments regulated businesses, by both laws and actions, governments would not need to take over businesses. Glass Stegal was in place - what turned out to be shady people wanted more freedom to run the economy into financial problems, and now these same interests complain that government is where the fault rests. A year ago the same people said, if the government cracked down on their operations, they would move their operations to London. If they had done that the American taxpayer would be the beneficiary.
Yahoo! Finance User - Friday March 20, 2009 11:21AM EDT
"If you don't like it, leave. It's really that simple." Did you read the article? That's what will happen. Cutting of our noses to spite our faces...
UptownSoxFan - Friday March 20, 2009 11:22AM EDT
Blodget's right. This will end in brain drain at all these companies our tax dollars have been poured into.
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Reedersong - Friday March 20, 2009 11:07AM EDT
If you are so darn competent, start your own business.