Spend and Tax
March 19th, 2009 . by economistmomOops–didn’t mean that to happen with the bailout money. Oh well, no problem…we’re the government and can just tax it back, said the House today:
With a bipartisan vote, the House today passed a bill that would impose a 90 percent income tax on $165 million in bonuses distributed to employees of the troubled insurance giant American International Group, the first of multiple steps that lawmakers are expected to take to quell public furor over AIG and other financial sector recipients of federal bailout aid.
The bill was approved 328 to 93. Supporting the measure were 243 Democrats plus 85 Republicans, while six Democrats and 87 Republicans voted no.
Democratic leaders had placed the measure on a fast-track calendar that required it to receive a two-thirds majority for passage, requiring two dozen or more Republicans to support for the bonus-tax legislation for it to be approved. The vote reflected a difficult choice for Republican Party members: supporting tax increases — an idea they otherwise view as anathema — or subjecting the GOP to criticism for not supporting efforts to rescind the politically toxic bonuses. The split in the ranks ran up through the leadership, with House Minority Leader John Boehner (Ohio) opposed the bill but Minority Whip Eric Cantor (Va.) voting in favor…
The chief author of the House proposal to tax bailout payments is Ways and Means Chairman Charles Rangel (D-N.Y.). Rangel had been a critic of the tax approach, suggesting earlier this week that the legal system was the preferred route for recouping the AIG money. But he reversed course as the idea gained broad support among an outraged citizenry and on Capitol Hill.
“We had very few weapons and the only ones that we had that made sense . . . was the [tax] code,” Rangel told reporters last night. The House bill would tax 90 percent of bonus income for individuals with a household income of at least $250,000.
It seems to me this is skirting dangerously close to a Bill of Attainder. Since Congress is made up mostly of lawyers, I’m sure they’ll figure out a way to finesse the problem. I have to say I am ashamed of my party.
Has Mr. Rangel paid his taxes yet?
What the Obama Administration is failing to see the magnitude of measures which will effectively eradicate the ability for American financial firms to retain top talent.
I hope Washington realizes this before it is too late…
As an addendum, I’d like to add that this tax on bonuses will be waived for companies participating in Secretary Timothy Geithner’s new plan to give businesses incentives to buy assets.
As an addendum, I’d like to add that this tax on bonuses will be waived for companies participating in Secretary Timothy Geithner’s new plan to give businesses incentives to buy assets.
bsfreeeconomics.blogspot.com
The “bonus tax” is self-defeating and dimwitted across the board. I would like someone to explain to me even one good thing about it, to offset all the bad.
Jonathan Clements, formerly of the WSJ, reports that he took a job at Citi late last year — and so obviously had nothing to do with creating its troubles, he’s only doing his little bit to help it out of them — but now would be retroactively subject to the 90% tax because his wife’s income combined with his puts their household income over the $250k limit.
I don’t know what’s worse about the tax, that it tries to violate every basic principle of sound legislation and legislative responsibilty that it can in as small a legislative package as possible….
… three for three there! … or that it is just so plain stupid.
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I’d like to add that this tax on bonuses will be waived for companies participating in Secretary Timothy Geithner’s new plan
So they say this month. It was all the way back last month, you may remember, that Congress passed legislation saying it would honor all pre-existing contracts among the bailout firms.
Say that the Senate passes this thing so it actually becomes law. Imagine that then you are reliant on a promise that Congress made to you in law, but wihich you know could become politically unpopular — like, say, private investors getting very highly disporportionate profits compared to the govt under the Geithner plan, which certainly seems possible on its face.
How secure would your trust in Congress’s promises be then? Would you be sure that the >75% of Congress that just voted to repeal their promise of a month ago to honor contracts, when the promise become politically embarassing, wouldn’t also do its best to similarly “claw back” your “excessive profits” gained at taxpayer expense?
I can’t disagree with you, Jim. The private sector is undoubtedly questioning whether to cooperate with Congress due to this history of changing the rules mid-game.
“How secure would your trust in Congress’s promises be then?”
A possible solution would be Obama coming out issuing an executive order stating that the rules won’t change mid-game, and that Congress will uphold their side of the bargain. Congress must be more consistent, and can’t continually change the rules on firms if they expect companies to cooperate with federal plans.