TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Monday, March 23, 2009

Urist: The AIG Tax Is Sexist

The Working Women's Tax, by Jacoba Urist, a former tax lawyer at O'Melveny & Myers (and daughter of Cardozo Tax Prof Edward Zelinsky):

No doubt, the hastily passed “TARP bonus tax” is riddled with potential constitutional and policy pitfalls. Even worse: It’s sexist.

The bill imposes a 90% tax on the lesser of the bonus payment received by a TARP recipient or the amount of adjusted gross income over $250,000. The threshold falls to $125,000 for a married individual filing a separate return. So married individuals filing together also only get $250,000 before triggering the 90% rate.

Consider a typical professional New York couple: Tom, age 31, put himself through business school and currently works as a research associate, earning $250,000 a year—$100,000 in base salary with a $150,000 year-end bonus. If Tom were single, that would be the end of the story: no TARP penalty tax.

But Tom is married. His wife, Anne, a law firm associate, newly minted physician or McKinsey consultant (take your pick from the thousands of jobs that work here) also put herself through graduate school. She now earns an additional $140,000 for the family.

The outcome: Anne’s income, added to Tom’s, triggers the TARP bonus tax, even though she had absolutely nothing to do with AIG, Merrill Lynch or any of the companies that received government aid last fall. Anne’s paycheck certainly doesn’t “belong to the American Taxpayer." Surely Anne doesn’t stand for “Arrogance, Incompetence, and Greed.” Most disturbing, Anne and Tom are penalized for being married and for Anne’s working outside of the home—the ultimate marriage penalty.

Unfortunately, Wall Street is still a boys club and this bill punishes a second household earner. Assuming even an extremely low estimate—let’s say, only 60 percent of Wall Street executives are men—the law discriminates against married women in the paid workforce.

The TARP bonus bill may have started off with the best of intentions (disgorging improper bonuses). However, without the appropriate time and care, it ends up causing bizarre and inappropriate consequences (taxing working women like Anne). Forget AIG. This legislation should be called the Working Women’s Tax.

Jacoba Urist has a J.D. and an LL.M. in Tax from NYU. Her marriage bears some similarity to Anne’s.
 

http://taxprof.typepad.com/taxprof_blog/2009/03/urist-the-aig-tax-is-sexist.html

News, Tax | Permalink

TrackBack URL for this entry:

http://www.typepad.com/services/trackback/6a00d8341c4eab53ef01156f3148ca970b

Listed below are links to weblogs that reference Urist: The AIG Tax Is Sexist:

» AIG: An Insane Government from Roth & Company, P.C.
After last weeks AIG bonus frenzy, more sensible voices are emerging to point out some of the unintended consequences of... [Read More]

Tracked on Mar 23, 2009 6:13:21 AM

Comments

It is ridiculous that the government is going to go through with AIG tax, but this argument against it is even more ridiculous than the tax itself. Couldn't you make the same argument regarding graduated tax rates? Should we be pushing for a flat tax in the name of gender equality?

Posted by: AJ | Mar 23, 2009 6:21:51 AM

While stipulating that the 90% tax is bad public policy and generally stupid, Tom and Anne should drop by Detroit and see what real misery is.

It is tough to develop much sympathy, in current context, for two Wall Streeters who earn $390,000.

(If Anne is a Wall Street lawyer or a Mckinsey consultant I have even less sympathy - sorry.)

Tom probably made a very good income the past several years, when his firm was helping to destroy a large chunk of the world economy, not to mention my IRA investments.

Better yet, Tom and Anne should talk to their grandparents about, say, the state of the world in 1943.

Posted by: save_the_rustbelt | Mar 23, 2009 6:38:04 AM

AJ, Life has been extremely unpleasant for people in the past and is unpleasant for many people now. This is not a reason to make life more unpleasant now or to ignore unfairness now. By that logic almost any adjustment of tax law could be dismissed because their are children with severe malnutrition and minimal education in Appalachia.

(Disclosure:I'm a sibling of the author)

Posted by: Joshua Zelinsky | Mar 23, 2009 9:16:24 AM

No sympathy need be accorded to people who make "too much." Class warfare has arrived!

Why not tax everyone who makes more than $250,000 at a 90% tax rate. Think how stimulative that would be for the economy!

I have an even better case for you. I worked at a bank acquired by Bank of America. Our small bank never did a subprime mortgage. I deferred all my bonus payments for 10 years. After being laid off by BAC, I found a job after 5 months. The distribution of my life savings is being made by BAC this year. If HR 1586 is passed, a major portion of my life savings would be subject to a 90% penalty tax.

That tax, on top of my destroyed IRA investments, is why I blame Congress for creating this mess and making it worse!

Posted by: DLN | Mar 23, 2009 11:33:07 AM

It's a stupid law.

But has the author read it?

The term 'TARP bonus' is defined "with respect to any individual." THEN the amount is actually calculated as the lesser of

"(A) the aggregate disqualified bonus payments received from covered TARP recipients during such taxable year, or

(B) the excess of--

(i) the adjusted gross income of the taxpayer for such taxable year, over

(ii) $250,000 ($125,000 in the case of a married individual filing a separate return."

So the law begins with "individual" as the unit for determining the tax. Most likely the calculation is applied to Tom only.

Obviously the law would need some clarification by the IRS but there's no reason to think they or anyone would read it the way the author has -- except to add it to facts that are themselves unsupported to reach a conclusion calculated to invite controversy and not serious commentary.

Posted by: jimmie | Mar 23, 2009 11:38:31 AM

On the other hand, if both members of the couple worked for AIG, they're getting off relatively easy, as a genuinely progressive tax would have them in a 95 percent+ tax bracket.

Posted by: Michael A. Livingston | Mar 23, 2009 12:57:08 PM

Yawn... how about Jacoba just go back to writing crappy novels? Hard to feel sympathy for a hypothetical couple pulling down 400 large, when plenty of us can't find a job in this economy. I guess the lesson is to be careful whom you marry, as the robber barons of Wall Street are now getting their just comeuppance.

Posted by: Wade | Mar 23, 2009 8:02:07 PM

DLN makes an interesting point. However, I think his analysis fails due to the law's repeated referral to "the taxpayer". My understanding is that a husband and wife are construed by the IRS to be a single taxpayer. Therefore, the above example would probably run afoul of the Tarp tax.

I am not a fan of this hastily drafted law, and agree with Jacoba that the TARP bonus tax, as currently construed, discriminates against dual income taxpayers. However, that does not make this tax "sexist". In fact, her referral to the tax as the "Working Women's Tax" (rather than "Men's") is much more sexist than any piece of the bill.

To be "sexist" a law would have to treat one sex differently than another, or at minimum, affect the sexes disproportionately. For example, if women buy more jewelry, a special tax on jewelry could be construed as "sexist". However, Jacoba is complaining about a situation where there is a husband and wife. This tax affects both spouses of the marriage unit, and is not sexist in any way.

Of course, the easiest solution for people similarly situated to Jacoba's example is to get divorced. If Jacoba gets divorced by 12/31/2009, the Tarp tax won't apply, and Jacoba (and her husband) will have saved $126,000 (or 90% of $140,000).

Posted by: Paul Rudolph | Mar 24, 2009 3:28:52 PM

Like requiring married couples to be taxed at a bracket based on their combined income, this is only "sexist" under the assumption that the wife inevitably makes less money and her salary is the "additional" pocket money rather than the household-sustaining income. I think we can see where the real sexism is.

Posted by: PG | Mar 24, 2009 3:30:22 PM

I can't believe some of the comments on here. What the hell?!?!? Are we communists now? Are we so determined that everyone be EQUALLY miserable. I don't have a job so everyone else who has survived being laid off (so far) should have their hard earned money taken away?????? Apparently having some semblance of a white collar job, or working in a fortune five hundred company . . . hell, working on or near wall street, makes you a robber baron who is guilty of bilking the poor and downtrodden of this world out of their oh so hard earned cash and flinging the USA, nay, THE WORLD into a recession. Are there morons out there who actually believe that? That the world is so simplistic? That its me against the other guy, and if I can't have something they shouldn't have it either no matter what the circumstances. The POINT of the above blog post (however, inexpertly written) is merely that this punitive tax ASIDE from all the constitutional and (bad) policy issues is still so broad that it punishes totally innocent hard working people whose only crime was that one member of the family unit happened to work in a company that was "lucky" enough to be designated "To Big to Fail."

Posted by: anonymous | Mar 24, 2009 4:02:59 PM

Want to REALLY see housing prices fall through the floor in markets like SF and NY? Tax all income over 250k at 90%, which after high state taxes in CA is effectively 100%+. In the land of the the $1M+ crappy condo, you'll see mortgage defaults like you never thought possible.

Posted by: JimAtLaw | Mar 25, 2009 1:14:18 AM

How is this sexist? Switch the roles of Tom and Anne...

It *is* anti-marriage. So are the current "progessive" tax rates for a two-professional couple.

I think there's a decent number of non-married professionals that don't want to pay several hundred to a thousand per month for privilege of being married.

Posted by: Anon Anon | Mar 25, 2009 8:38:30 AM