TaxProf Blog

Editor: Paul L. Caron
Pepperdine University School of Law

A Member of the Law Professor Blogs Network

Sunday, March 22, 2009

The Backlash Against the AIG Tax

Financial Times: Banker Fury Over Tax "Witch-Hunt":

Bankers on Wall Street and in Europe have struck back against moves by US lawmakers to slap punitive taxes on bonuses paid to high earners at bailed-out institutions. Senior executives on both sides of the Atlantic on Friday warned of an exodus of talent from some of the biggest names in US finance, saying the “anti-American” measures smacked of “a McCarthy witch-hunt” that would send the country “back to the stone age”. ...

“There are three big industries where the US has global leadership: financial services, media and technology. Introducing this 90% tax is like taking one of those industries out the back and shooting it,” said a top Wall Street executive.

In Frankfurt one employee at a US investment bank said the new tax measures would “send [the US] back to the stone age.”

Wall Street Journal: The 102% Tax: Forget Stabilizing the Financial System. Congress Is Hungry for Revenge, by James Taranto:

[S]ome employees would end up being taxed on their bonuses at an aggregate rate exceeding 100%. Bonuses are also subject to the Medicare FICA tax of 1.45% (not counting the employer's portion), bringing the total federal take to 91.45%. Employees are also liable for state and local income taxes, which would not be deductible from the bonus tax. For an employee living in New York City, the state and local rates are 6.85% and 3.648%, respectively. Add it all up and the tax liability comes to 101.948%.

Wall Street Journal: The Backlash Against the AIG Bonus Backlash, by Stephen Grocer:

There seems to be a backlash against, well, the backlash.

The flap over the AIG bonuses spurred the House of Representatives into quick action. But instead of a measured, well-reasoned bill, the House passed a bill that was more about revenge. The legislation would impose a 90% surtax on bonuses granted to employees who household’s income is more than $250,000 at companies that have received at least $5 billion from TARP.

The Business Insider:  Anger and Panic At Goldman Sachs Over 90% Tax, by John Carney:

Goldman Sachs was solidly behind Barack Obama. Indeed, Goldman Sachs has long had the reputation as the investment banks with the most Democratic supporters on Wall Street.

But the vote earlier this week to impose a 90 percent tax on bonuses at TARP supported banks has many at Goldman feeling betrayed, fearful and angry.

"Fuck Obama," one person said aloud on the floor, giving voice to the feeling of political betrayal.

Word spread quickly that because the bonus tax only applies to TARP recipients, foreign banks wouldn’t be covered. At least a few people at Goldman Sachs have already called recruiters. And recruiters have stepped up efforts to poach Goldman employees offering jobs safe from the TARP bonus tax.

The Business Insider:  90% Tax? Now We Really ARE Screwed, by Henry Blodget:

The frantic passage of the Populist Rage Tax was a new low in the US government's response to this crisis. It shows just how likely we are to doom ourselves to a decade or more of misery--by choking our markets, closing our borders, turning our banks into tools of social policy, and wrecking what's left of our economy.

The Volokh Conspiracy: How About a 90% Tax on Some of the People Who Caused This Mess?, by Jim Lindgren (Northwestern):

I was thinking: How about imposing a 90% tax on the income over $100,000 of some of the people who caused this mess? Perhaps not at the top of most lists, but fairly near the top, should be Christopher Dodd, Barney Frank, and the leaders of Fannie Mae, Freddie Mac, and ACORN. If Congress is going to target unpopular people who make larger than average incomes, it should start with itself (and its sources of campaign funds and workers).
     

http://taxprof.typepad.com/taxprof_blog/2009/03/the-backlash-against-the-aig-tax.html

Congressional News, News, Tax | Permalink

TrackBack URL for this entry:

http://www.typepad.com/services/trackback/6a00d8341c4eab53ef01156f2ede6c970b

Listed below are links to weblogs that reference The Backlash Against the AIG Tax:

» AIG bonus tax effective without enactment from Don't Mess With Taxes
Put away your torches and pitchforks. Your outrage, along with a proposed but not likely to be enacted 90 percent tax on AIG bonus payments has done its job. It seem that the threat by Representatives to take back AIG bonus money paid in federal bailou... [Read More]

Tracked on Mar 24, 2009 4:26:58 PM

Comments

The 90% tax is incredibly bad idea, even when targeted.

On the other hand, the boy wonders who melted down much of the world's financial system should quit thumping their chests and try to fix the damage.

Or they could move to hedge funds, many of which are collapsing (remember when hedge funds were the brave new world of finance?).

And when do the indictments start?

Posted by: save_the_rustbelt | Mar 22, 2009 9:30:29 AM

This reaction only serves to confirm the suspicions of the average American who is already pretty much convinced that all of the financial industry people who caused this mess expect everyone else to clean it up. In addition, business publications such as the WSJ are just adding to the backlash by portraying the recipients of the bonuses as victims relative to this tax. As the unemployment numbers keep rising and the state of the economy keeps falling, these are the last people anyone is likely to think are getting a raw deal. Besides, bonuses are traditionally linked to performance. Why should these individuals be rewarded for failing?

Posted by: Stephanie | Mar 23, 2009 4:26:36 AM

I am stoked that these guys are getting pissed off. No one is worth the amount that they were paid. They produce nothing, just fiddle with numbers, snort coke and think themselves above it all. No one cares what executives in private companies get paid, because they have taken the risks with their own money. These guys take risks with OUR money and get paid a motza to do so.

When a company is publicly listed, there obviously needs to be some sort of simple and clear formula to determine pays and bonuses. No one cares about bonuses if they are making a sustainable and large profit. Putting directors and executives in charge of determining thier own pay is like putting a bunch of drunks in charge of the pub.

It terms of vigilante action against those that refuse to pay back bonuses - though I dont condone thier actions, my sympathies lie with the vigilates.

Posted by: kieran black | Mar 27, 2009 6:49:43 AM