Hhhm. Even though the UK 50% bonus “supertax” was deemed to be a bit of a failure (the banks just grossed up bonuses to compensate for the levy), Senators Barbara Boxer and James Webb have proposed a similar measure, and one wonders how it might fend off the sort of gaming that plagued the UK effort.
The one-time tax would be limited to bonuses of more than $400,000 at firm that received more than $5 billion in TARP funds. Bloomberg notes:
The bill would affect 13 firms and could raise $10 billion to help cut the federal deficit, Boxer said.
“It’s outrageous that many of these companies are doling out millions of dollars in bonuses while the rest of America feels the pain of reckless decisions,” said Boxer.
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Boxer is correct.
The Fed and the Feds can jointly tell the banks that it would be counterproductive to increase bonuses in response to the tax, and don’t just increase base salaries.
But on a larger scale, the financial system that serves the real economy should be a utility-like enterprise. All the gambling should occur elsewhere. Either that or government should relegate deposit insurance to the private sector. Government could then tell people, if they want government guarantees, buy Treasuries, or a regulated fund (mutual or ETF) that invests only in Treasuries.
Remember that till the GFC, Australia had no deposit insurance and no depositor losses.
Bonuses are not just paid to those who made the stupid “gambles” but are also paid to those who have come to do the difficult job of unwinding those shaky assets still lingering on bank’s balance sheets. Without this unwinding, the current situation will become much worse. And without bonuses, those who came in to do the job will inevitably get out
Let them go then.
Maybe they’ll go do something productive for society, instead of duct taping cracks in the Loot Machine.
And what else are they going to do? Sell shirts at Costco.
Puh-Leeze.
90% of these jokers would do their same job for one-tenth their current pay, once they sobered up from the little ego-blow.
Love the idea of taxing the individuals. Any thing that discourage people to go into a parasitic “profession” and into something else is a welcome change. I said it before if there is an industry you want to be smaller forget about regulations, just tax the principals. One more thing to avoid the companies to gross-up the bonus just require them to increase their capital reserves or something of that nature (leave no money for them to loot).
Don’t tax the individuals, tax the institution for paying the bonus at 100% of the bonus paid. Concurrently, impose an individual general 50% tax rate on ALL bonus monies in excess of 50% of base salary. Go a bit further and demand that what might have been paid as a bonus must be paid into retained earnings. Now the work around would be commission based salaries. Tax those at regular rates up to say $2 million; then confiscate at say 50% of all monies above the $2 million.
It has been excess borrowing coupled with undercapitalization that has gotten us to this pass. Go to the core of the problem. Otherwise everything is simply palliative and the patient will die as a matter of course.
What I’m suggesting is that most financial services people are overpaid and most operate as rent seekers and do not create value, they extract a fee for what is ultimately a non service.
Taxing the companies does not work. The people running don’t care if the company fails as long as they have extracted the money. See how this has worked so far (what the principals did):
Extract money from your customers (selling them crap)
Then from the company (salary/bonus)
When all those had dried out then from the tax payers
Do you really think that they care if the company they control goes under?
Tax the individual. It’s the only way.
Then go after them for off shoring their money.
Then, throw them in jail for doing it.
Then, I’ll be happy.
The system is rigged. anytime there is a recession, the bankers get cheap money and “the consumer” gets inflation.
The only way the bankers would have gotten a true salary adjustment would have been for the banks to fail. Then these suckers could get a pay cut like everybody else when searching for a job with more competition, and fewer employment opportunities.
How about some sort of a tax imposed based on employees pay. Essentially taxing away excessive pay.
Aren’t these the same “Senators” who voted TARP in, despite overwhelming public outrage?
They, with their unique economic insights, decided that the skies would fall, and the rivers run red for 10,000 years, but for swift bold action?
This is EXACTLY why you don’t open pandora’s box and bailout private industry, CONSEQUENCES BE DAMNED>
This is America man…. I suspect the world would have survived without TARP.
Now they want to extract a paltry 100 mil so they can wash their hands of it?
I hope everyone who voted for that communist bill understands the long term damage it has inflicted on this nation..
I hope liberals and conservatives both agree on the utter disgrace these senators are to this nation.
Funny how they can get a bank bill done in 4 days but healthcare take s a year with a supermajority. HA
‘Tax’, meaning confiscation of individual income by “government” by force, is never the answer to any problem. If ‘tax’ is your answer, you’re asking the wrong question.
Increase marginal rates to 90% for gross income, including capital gains, over $1 million.
Boxer is up for re-election. She is vulnerable if the Republicans put up a moderate (looking less and less likely — have you seen the evil sheep ad put out by Carly Fiorina?). Thus, Boxer is going public with very populist rhetoric, in an attempt to remind California voters she still lives and breathes.
In this case, Boxer is trying to tap public resentment at the banks, bailouts, and continued excess in all fronts. She is on to something; however, I think her plan misses all the other big fat cats who got us into this mess. Many of them no longer work in banks that took bailout funds. More effective would be to empower an agency to claw back ill gotten gains stolen through fraud, deceit, and other means by bankers (Goldman Sachs, to name one) who were selling MBS as solid gold investments they knew or should have known were not, such as the case with Goldman simultaneously betting against those same MBS. She should also set sites on Geitner who enabled and has continued to enable bank excesses and positioned us for another run on the banks. Moreover, Congress itself (both parties) and the past five presidential administrations that helped to set up the moral hazard our financial system is built on. California needs to elect someone with the guts to fix that. Unfortunately, none of the candidates for Boxer’s seat have the brains and the leadership skills to come close. I think Tom Campbell is the most capable of the bunch but think he’s not even up to the task. Financial lobbyist money controls Washington too well and it’ll break anyone who tries to cross it; case in point is the effective job private student lenders have done to keep their subsidies.