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How is this not win-win?

Congress Moves to Slap Heavy Tax on Bonuses

The Washington Post spins this clawback as a bad thing, but I read it as win-win. Excessive bonuses, if paid by companies receiving a bailout, will be clawed back at 90%. If it doesn’t prevent the bonus payouts, at least most of that money will go back to the tax base. Why stop there? Make it a 100% tax!:

A quickly assembled House bill was approved 328 to 93. It struck hard at Wall Street’s compensation system, which has come under fire because of the $165 million in bonuses distributed last week by American International Group to executives of the troubled unit that helped lead the insurance giant to the brink of collapse. Under the legislation, [b]those who received bonuses of more than $125,000 would surrender 90 percent of their payments to a special income tax[/b].

But the bill’s reach would extend to bonuses paid to tens of thousands of employees at the nation’s nine largest institutions that have received at least $5 billion in assistance under the $700 billion financial rescue package Congress approved last year. The measure also applies to Fannie Mae and Freddie Mac, the mortgage giants the federal government took over in September.

My bold. First off, if this is like every other income tax in existance, the 90% won’t kick in until the bonus reaches $125,000. $125,000 (at a normal tax rate, assuming these people don’t have dishonest ways to hide that sort of payment from the IRS) sounds like a pretty good fucking bonus for gambling on Ponzi schemes and credit default swaps. So the 90% tax will basically act as a clawback on bonuses above $125,000, which from now on I shall call “anal raping of the average American taxpayer”.

But wait! More winning:

“It will have a chilling effect on participation in any government recovery effort,” warned Scott Talbott, senior vice president of government affairs for the Financial Services Roundtable, an industry group. “It harms middle management and the rank-and-file sales force, thereby weakening the very firms we are working to strengthen.”

What’s that now? Firms who plan to pay out exhorbitant (i.e. >$125,000) bonuses to their executives will balk at taking federal cash if they can’t waste the money on overpaid paper pushers, rather than using it as intended: to open up the credit market? And this is a bad thing? Fuck you, Scott Talbot. If a bank wants to overcompensate some middle manager who’s lost millions gambling on arcane financial instruments so he can buy a new Maserati, maybe that bank should balk on the bailout. Maybe they should be allowed to fail, and have their assets (and debts) swallowed up by a more honest institution (if such a creature exists).

Although leading Democrats thought the bill’s chances were threatened when House Minority Leader John A. Boehner (R-Ohio) condemned it, about half of the GOP House members backed the measure. The lopsided House tally sent shock waves across the financial sector. Officials predicted dire results, saying the brightest talent could flee institutions that remain wobbly as the firms themselves leave the rescue program prematurely.

Go where, exactly? What firms will hire them, and under what magical conditions will their dismal failures be so handsomely rewarded? Another win!

In another article, I read that AIG executives are being treated more or less like murderers and child molesters outside their office. To which I say: another win!

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17 thoughts on “How is this not win-win?

  1. It’s not constitutional. You can’t change the rules after the fact. The income is taxable under the old system only.

    This won’t make it through the Senate.

    Still, the upside is that many Republicans voted for a tax hike. There will be much fodder there next election.

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  2. I don’t think a tax, differed in payment and clearly in an attempt to post hoc change the terms of a legally entered into and binding contract is the way to go on this.

    Severed heads on pikes outside the doors of the NYSE and lining the sidewalks of Wall street would be much, much more effective. And immediate.

    And no “rewarding failure” or other moral hazard concerns. Everybody wins. Well, except crooked bankers and shysters.

    Mike

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  3. This is maddening. I think you are missing the big picture here. Our government made it ok for these people that we bailed out to get the bonuses then they turned around and singled out those people for a tax! That’s unconstitutional to say the least! And some my say down right evil.

    They just announced adding another trillion plus dollars to our debt enslaving more Americans to future taxes. Our debt is about to, if it hasn’t already, out pace our GDP for pity sake.

    Did you see what that did to things like gold! I was watching with the free widget ExactPrice ( http://www.learcapital.com/exactprice ) when the announcement came out and it sky rocketed. But what a lot of people haven’t mentioned is that it just before that announcement the gold dropped big time. Smelled like manipulation to me. And I saw in the news that a number of banks are now buying up gold. I wonder how many bought gold during that drastic fall only to have it sky rocket on the FED announcement.

    Something that’s been itching at the back of my head was the FDR deal where they made it illegal for citizens to own gold and so confiscated all the gold they could get their hands on. With this 90% unconstitutional tax they just levied against the AIG employees I am not so sure that we won’t see a redo of FDR where they go out and take real wealth to secure they’re fake printed wealth.

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  4. As the sign on Wall St said last fall – “Jump, you fuckers!”

    From what I heard last night on the news, it might be that this tax gets taken apart as unconstitutional. From what I’ve read today, it seems safe enough, but we’ll have to wait and see.

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  5. Well, I guess the RWNs are right. This is totally unconstitutional and stuff. They should probably just abduct the executives, send them to Gitmo, and waterboard them to death. That, according to some other RWNs, is totally constitutional and stuff.

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  6. Don’t put words in Brian’s mouth, Dan. He didn’t say that the only people that disagreed with this are right-wingers, but that all (or a largish chunk) of right-wingers do disagree.

    For what it’s worth, I agree with Krugman’s criticism of the Geither/Obama approach – they seem to be assuming that there is nothing fundamentally wrong with the banking system and they don’t appear interested in following up these gargantuan bucketloads of ca$h with regulatory change. But that’s an aside that I’ll work up later on.

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  7. I’m merely pointing out that it’s not just right-wingers who object to it – and that if those 3 object to it, maybe it’s not the wonderful bill Brian makes it out to be; it’s overly broad in some instances (as Silver points it, it’s going to punish some people who really have done a good job) and probably isn’t going to actually do any good (all AIG has to do is rename the bonuses as ‘Salary adjustment’ and the bill’s for naught.

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  8. I expect that you’re overstretching our effectiveness and reach if you consider a one-off on an obscure blog whose readership is largely limited to those of us who post here “advocacy”. Besides, I’m getting a little tired of your periodic moralisms.

    As for the bankers, Dan, my heart bleeds piss for the sad bankers, Dan. Pure piss.

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  9. Speaking of putting words in mouth – where did I advocate pity for bankers? You might actually try reading the 538 piece,

    http://www.fivethirtyeight.com/2009/03/tax-banks-not-bankers.html

    It’s not just bankers that are going to get screwed over by this.

    As for getting tired of my moralisms – if my disagreeing with the Party Line espoused by you and Bri offends you so much – feel free to cancel my membership here. Besides you’ll have to excuse me if I’m not overly impressed by someone who’s solidarity with the blue-collar workers of the UAW/CAW doesn’t actually extend to his own wallet – you do know Toyota isn’t a union company, Mr Matrix Owner?

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  10. Actually, Dan, I am curious how Krugman defends these obscene bonuses paid to greedy executives at failed firms. Perhaps you could enlighten us as to his argument, rather than just sniping for sniping’s sake.

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  11. Brian,

    Krugman doesn’t defend the bonuses, I don’t think (I haven’t seen it in print anyway), but he disagrees with a lot of what Obama is doing regarding the bank situation. The quick view is that Krugman thinks massive overhauling of the banking system is required for any recovery to happen – that the system itself is broken. What Obama and Geitner appear to be doing is trying to prop up the biggest of the banks to hold the current system together, without making the fundamental changes required. In the afterglow of twenty years of deregulation even after the 80’s S&L lesson, I can’t say I disagree with this at all.

    Also, he thinks that since the Obama people knew about the bonus payout before handing out the TARP cash (see Chris Dodd, “yeah, I helped take it out of the bill”), they should have taken action against a foreseeable outcome *then*, not now with a cludgy tax bill. I can’t say I disagree much with this, either.

    In effect, at least in the Krugman case, I don’t think he’s so much as against the tax plan (or for the bonuses) as resigned to it as ass-covering for a larger fuck-up.

    As for Dan’s personal slagging above, I’ve intentionally stayed away from the blog for a couple of days so as to not react petulantly. Stay around or not, Dan, it’s all one to me. I’d rather that you did, but would appreciate it if you didn’t take comments so personally. Your first response when disagreed with is all too often to attack the writer and not the text. This leads to hard feelings, retributions, and senseless hardening of attitudes.

    And Dan, let’s just say I’m not going to take financial advice from you. Okay? I’ll leave it at that.

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  12. I figured that he didn’t defend the bonuses. I read something of Krugman’s last month blasting the Fed over the handling of this whole affair. I was extremely confused when Dan listed him as a supporter of obscene bonuses. I don’t know who those other two are, and certainly don’t feel the need to research their opinions. I’ll probably just find that they also find some of these executive bonuses a bit obscene.

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  13. I’m not actually sure why exactly Dan brought these guys up. Nate Silver is a knowledgeable political guy – he runs the fivethiryeight website and predicted the presidential results to the tenth of a percent. The only things I’ve seen on his site involving AIG, and I’ve only cursorily looked it over, is an analysis of whether it’s hurting Obama in the polls. There might be further analysis elsewhere that I’ve missed. As for Josh Marshall, I’ve seen commentary (and criticism) on the plan overall, but little about the bonuses in particular. However, I didn’t spend much time last week or this weekend on the web prowling, so it’s likely I missed something.

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