Thursday, March 19, 2009

90% Tax on Bailout Bonuses

The House just voted 328-93 to levy a 90% tax on bonuses for executives of any company getting more than $5 billion in bailout money from the government. It's rather extraordinary that we've gotten to this point.

I can't say I'm exactly "for" this bill, though I'm not exactly against it either. I share the sense of outrage that people who run a company into the ground can walk away with huge payouts. I actually joked a while back that the appropriate vengeance against these klepto-execs was to create a very high, targeted tax exactly like this-- who knew anyone would actually have the guts to do it! But it just seems to have the potential to turn into a big ugly mess that won't actually do much good.

However, I'm all for progressive taxation, and I think if we'd never rolled back the very highest marginal rates so much, we'd be in less of a mess in the first place. As I always like to remind people, we had extremely high marginal tax rates in the 1950s and it was not incompatible with booming economic growth. If there's any lesson to be learned from recent months, it is that there will always be people whose greed and ambition knows no bounds. They may work their way to the top, or they may steal their way to the top, but they are dying to get there one way or another. Higher taxation won't stop them from being productive, but it will help pay for protecting the rest of us from their excesses.

But geez, let's go back to doing it in a nice, graduated way-- what's going on these days is enough to give you whiplash!

11 comments:

Rendell @ BrandlessBlog said...

It doesn't matter, to bailout these dinosaurs is already a mistake.

DogAteMyFinances said...

Doesn't matter because it can't touch foreign nationals like, you know, the entire London office. Wheee!

Digiholic said...

It's called a "Bill of Attainder" and it is highly unconstitutional.

banking deals said...

Does the bill pertain to any punishment set on an individual without due process or is it only referring to new bills which are created to allow punishment for perceived injustices as they happen?

Slinky said...

I'm curious, why do you support progressive taxation? How do you justify progressive taxes in a country that's all about upwards mobility? On one hand, it's saying you should work hard to make your life better and make things better for your children. On the other hand, if you do that, you can't keep much of it (so why bother?) and you have to pay for all those people that couldn't be bothered to work for it. I don't get it.

Anonymous said...

But that high marginal tax rate in the 1950s was for over $400,000. That's probably $1 million in today's dollars. Even if our rate is much lower today, it applies at around the $300,000 level. So it's hard to compare, I believe--the rate might be lower, but it applies to many more people, so it might be as or even more effective.

mOOm said...

Well, it's not a tax on bonuses - people should be able to run a company into the ground and get a bonus for it if the shareholders didn't object :) It's a penalty tax on bonuses at companies that received public money. Which is quite a different thing.

Adrienne said...

Three words: That asshole Reagan

dawn said...

What i don't understand is how they decided to come up with a 90% tax. I mean, why not 100%? It's the principle of the thing, so they shouldn't be allowed to keey ANY of the money, right? What message does it send to allow them to keep 10%?

stephanie said...

Higher taxation won't stop them from being productive

Actually, it very well may. Who wants to work hard to succeed if the government proves it doesnt' mind taking away your earnings? Also, it will have a ripple effect: when young people see this happening, many of them (myself included) are going to wonder what the point of working your way to the top is - if the big money your employer contractually owed you would be taxed at 90%.

I think that the companies should have been allowed to go under rather than bailed out. But if you want to bail out a private company, and tell them what they are and are not allowed to spend the money on, they should just become government entities - don't try to maintain the appearance of "helping private entities." That's what's happening. If a company is given money by the government, it makes sense that they will honor their contractual agreements about where some of the money will go (and yes, it is also logical and fair that employees who receive those bonuses will feel entitled to them, as they were contractually owed them by their employers).

Anonymous said...

What I love is Obama;s response to the scaling back of the charitable deduction for those making above 250. His claim is that those making above 250 get a hogher deduction than would a "bus driver". the fact is that folks making above 250 contribute an overwhelming amount more to charity than do "bus drivers" and similarly situated persons. Thus, the intent of the law was to promote charitable giving, not to prevent same.

The net effect of this will be an overall decline in charitable giving.

I think Obama's tax policy works wonderully in a vacuum state. However, in the real world, incentives must be provided for expenditures which benefit society, such as investment, charitable donations and home ownership.