Friday 20 March 2009

Congress readies 90% punitive taxes on bonuses



The Americans have begun moves to introduce probably the most socialist tax ever seen in their history. A 90% tax on bonuses for companies that have had a taxpayer bailout . The tax would apply to bonuses paid to high earning employees at companies that have received at least five billion dollars in aid from the US government. The measure comes after it was revealed that more than 160 million dollars were paid in bonuses to top AIG executives in the past week. The Democratic tax would apply to employees whose total annual pay exceeded 250,000 dollars at firms that received more than five billion dollars in government rescue funds.

So
Should it be done here in the UK?
Could it be done here?

Should Sir Fred get the 'Public opinion tax,' threatened in a moment of opportunistic populism by Harriet Harman a few weeks ago?
And if it were unveiled could a socialist government, desperate for funds, resist not putting that particular genie back inside the bottle.

Probably the only factor preventing what would be seen as a vote winning, anti Tory, anti capitalist, pro worker, debt reducing, equality, strong government policy, is that if it could be done for bankers, could it not apply to regulators? Or legislators? Or the guardians of the public finances? Or civil servants? Or Public sector workers? Or Quangos? Or Union Leaders?
Or MP's ....


Why only 90%

"We figured that the local and state government will take care of the other 10 percent," quipped Democratic Representative Charles Rangel, chairman of the tax-writing House Ways and Means Committee.

17 comments:

Anonymous said...

Did you see the piece in City AM earlier saying that it's unlikely to pass as it's unconstitutional?

Not that we have such a thing in the UK to stop our own lot of idiots.

Whilst the AIG bonuses themselves are odious punitive taxation is not the way.

Anonymous said...

This tax is a bloody outrage! And it will go further, over here as well.

Anonymous said...

There is nothing to stop the UK Parliament enacting retrospective legislation to impose a punitive tax rate on banker's bonuses. Retrospective or retroactive tax law is generally not enacted because it is bad policy (in politician speak, it loses votes) but the present incumbents already have a track record of chipping away at this convention, especially with changes which fall to be categorised as retroactive.

The courts would be powerless to challenge any retrospective change and one cannot but think that, in this very particular instance, a change in the law would be a total winner for the government. Bankers get f***ed, non bankers are cheered up and the government collects some extra cash.

Anonymous said...

Agreed completely. Retrospective taxation would: earn votes not lose them, generate much needed tax revenue and deliver justice. No-brainer unless of course the politicians are too tied to the senior bankers or have some hidden agenda. Bring it in. Targeted taxation seems to be the obvious way to right the wrongs created by people gaming the system. Taxpayers should not be paying bonuses despite all this self-interested nonsense about critical employees etc. The revenue producers are the risk creators - we need less not more.

Bill Quango MP said...

Agree Hovis. The fear is that 50 - 60 - 70% taxation becomes the new 'what government approves of' measure, rather than because it raises any revenue.
I cant find that City AM piece..have you a link?

MF/AB
This government was merrily pushing ahead with its retrospective car tax plans just a few months ago. It was only car sales collapsing that made them think again.
From a pure strategy point of view I could see many more ups than downs in bringing in a Fred tax of 90%. Especially as they are going to need to do something to displace all these FSA, Treasury and Northern Rock failure stories that are landing squarely on Brown.
I wouldn't be surprised to see a few kites, with this particular 90% tax tail on them, gently floating by soon. Probably with HH pulling the strings.

We shall have to see how the Americans fare.

Anonymous said...

By God, there's an incentive to pay back money to the government PDQ.

Nick Drew said...

Should five percent appear too small [Taxman!]

Be thankful I don't take it all [Taxman!]


oh dear, that dates me

Steven_L said...

Off topic, but I'm drunk and came up with a theory.

I posted it over at John Redwoods place too, but I'm wondering what you guys make of it:

After a bottle of red wine (which incidently cost more than £4.50) I've had an idea, so I thought I would share it.

A theme seems to have been developing on this blog to the tune that a rather large 'casino' has sprung up in the banking sector, inextricably linked to retail banking. I don't think anyone really disagrees with this either after recent events.

A lot of people also seem to agree that durig the height of the boom years that the money supply (in both USD and GBP) got out of control.

The US and UK governments have embarked on a program of 'quatitative easing', whereby they print new money to buy back the debt that correlated (before both currencies were debased) to some of the new money, thus putting more money into the 'system'.

I venture the idea that the new globalised electronic economy is actually a two tier economy. Let me explain, the banks were (prior to globalised deregulated electronic trading) split into 'investment' and 'retail' arms and the 'real' world economy was 'one thing'.

Now that 'investment' and 'retail' banking are 'one thing', the global 'real economy' has seperated into a 'casino' and a 'real economy'. Every action has an equal and opposite reaction?

Surely (rather than reward the winners from the 'casino economy' with QE) we need to find the winners and create incentives (whilst they are in a state of panic hiding away in T-bills and gold) for them to invest in real new businesses in the 'real economy' that will improve quality of life for the future?

What you all think, did ajoining 'casino' and 'normal' banking result in the splitting of the economy into a 'casino' and 'real' economy??

Discuss?

Eckersalld said...

I don't see it as particularly Socialist - if anything it's blood money. AIG committed fraud, and instead of spending the rest of lives being Bubba's bitch, the people behind it are only getting their bonuses arse-raped.

Now, if they'd prefer to keep the cash, end up with sphincters like Goodyear tyres and getting their protein from the old testicle express, I'm fine with that too.

Anonymous said...

@Obsidian

It may not seem socialist, but it is helping to create a socialist atmosphere.

Anonymous said...

Obsdian, exactly what "fraud" did AIG commit?

The Flying Spaghetti Monster said...

Ayn Rand would've had some strong words to say about this.

Anonymous said...

I can tell you exactly what fraud it committed. FP did not report probably internally as well as to shareholders the massive collateral call risk it was running which brought the firm down. I think this was either fraud or gross negligence and I am pretty sure you say Cassano I say Casino knew exactly what he was doing but hoped he would have a huge bonus if and when disaster ever struck

Bill Quango MP said...

Dearime: Seems to have worked in the USA. The threat alone has caused some to return 50% of the bonuses.

ND. Let me tell you
How it will be.
There's one for you,
Nineteen for me..

Stephen L. You came up with this theory while under the influence? Its a good one too.
Last time I tried anything like that I put cheddar in the electric pepper mill. Invented the hand held/easy use/JML electric cheese grater...
I think the cheese is still stuck in it.

Obsidian: Socialist in the punish the rich for being rich sense. No one should have more than one TV or two cars type of mentality that was very popular in the 70's and is very much alive and well today.
Taking the bonuses isn't the problem. Its taking everything else as well that does so much damage to the country.

CCTV star. Welcome.
We are aware of your work

Anon. Well we won't have to play the spot the next bubble game for a years yet.

Eckersalld said...

@Anonymous

The fraud AIG committed was to enter into a series of contracts they had no ability to pay out the majority of.

@ Michael Fowke

There's been an increasingly socialist attitude growing for decades, and defeating that means picking your fights wisely. This bonus issue is pretty much the inverse of 'wise fight'

And of course AIG has a very simple way of circumventing the tax - return all the taxpayer cash they've received. Nothing wrong with attaching strings when handing out cash imo.

@Bill Quango

I disagree that this tax is about punishing the rich, it's all about stipulating terms for cash given, and freely accepted.

If it was about punishing the rich, it wouldn't have such limited scope. Should the US try to extend its scope to not-bailed out institutions, then yes, that would be a tax on the rich.

This is a tax on the higher-ups in failed companies that are suckling on the Governments teat. The Government, like any money lender, are free to attach terms and conditions to that, and vary them to some extent. It just has a much greater freedom in what those terms, and how and when it can change said terms.

This isn't socialism, this is caveat debtor.

Bill Quango MP said...

Obsidian
I don't disagree. There is almost no justification for the bonuses being retained. As you rightly point out, if the companies had not had access to taxpayers money then there would be no company and no bonus and no employment.
I don't think anyone here is against that.
The gist was more about once you accept the principle of 90% taxation, why should you not stick with it.
Voters will say no one should earn more than ..£100,000.
The Jonathan Ross fury was as much at his salary as his humour.
So when I say punish the rich, I am fully aware in this instance that the anger is justifiably from taxpayers paying huge bonuses for failure . It is what the next incarnation of this idea that a desperate government, with nothing to lose, and a very large, disappointed left wing in need of a reason to vote for them, might bring.

Anonymous said...

If you want a clear understanding of the AIG bonus situation, from someone who works high up the company read this: “Dear AIG, I Quit!” (http://www.nytimes.com/2009/03/25/opinion/25desantis.html). It is a very interesting perspective.