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Taxing bonuses: Is this good business?
Speaker of the House Nancy Pelosi (D-Calif.) talks about tax legislation sparked by bonuses paid to employees of the American International Group during a news event with Rep. Gary Peters (D-Mich.) and Rep. Steve Israel (D-N.Y.) at the U.S. Capitol in Washington, DC.
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KAI RYSSDAL: Speaking of which, those infamous Wall Street players, we are now almost a week into the uproar over that $165 million in extra payouts at AIG. Last night the House passed a bill to tax away 90 percent of big bonuses for executives in companies that got bailout money. The Senate, and the president, still have to be convinced. But Marketplace's Steve Henn reports that not everybody is sure taxing bonuses is the smart thing to do.
STEVE HENN: Last night Jay Leno said this AIG thing spooked him.
Jay Leno: And the part that scares me is, I mean you're a good guy, if the government decides they don't like a guy, all of a sudden, hey, we are going to tax you, boom and it passes. That seems a little scary as a taxpayer they can just decide.
Some tax experts agree.
DAVID CAY Johnston: I don't think this is the appropriate way to handle this.
David Cay Johnston is a tax expert and author of "Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense and Stick You With The Bill." He's no fan of corporations.
Johnston: But the public really ought to focus on not the $165 million in bonuses, but the $173 billion in bailout to AIG, and ask why don't we just let them go to bankruptcy.
If it's any consolation, this country has had this argument before.
JOSEPH Thorndike: In the 1930s, the federal government was bailing out a lot of corporations, including large insurance companies.
Joseph Thorndike's a tax historian. Back then, Congress worried executives would make a killing so they thought about taxing their income.
Thorndike: What they eventually decided was that the taxes were just impractical. It would be to hard to tailor a tax that narrowly.
Sound familiar? Today bankers are arguing the bonus tax could kill the bank bailout and a 90 percent tax rate is outrageous. But there's precedent for that too. The highest U.S. tax rate was 91 percent for all top earners from World War II until the 60s.
In Washington, I'm Steve Henn for Marketplace.
Bonuses on exceptional profits have a good effect on incentives, but they should be tied to long-term performance, not quarterly or even yearly.
Of course, they should be taxed, at regular rates. To do otherwise would distort the proper relationship between salary, bonuses, and stock options.
Taxes have went out of control in this country. They tax for everything. Look at alcohol and cigarette taxes for example. That aside, taxes can help employers encourage wealth disbursement. Over the past decade and a half, corporations have stripped all performance based pay from the average worker and gave it to the investors as profits from streamlining. Corporations better take heed. Its time to look at spreading the wealth. They take advantage of government programs frequently, this latest round just being a part. Corporate America has been plundering the blue collar worker and many of the white collar workers for quite a while now. It's time for ethics to return, lest you cut the path for socialism. Lets read more history and look what spurs socialistic movements. There is much, much more than the bottom dollar I am afraid. Will corporate America be educated enough to understand how the economy and governments work?
I am having some trouble figuring out what a bonus tax will do to recover any money from people congress says they are targeting. I thought most of AIG executives with the division that wrote the credit default swaps were in London, UK. How do we collect from Brits and ex-pats?
I see you have cut the text of the Wall Street Journal reporter pooh-poohing the use of taxation to recover these bonuses. Too much outrage? As if the people investing in 401k's knew that these creeps at AIG were gambling with their retirement savings. Did this reporter accurately investigate this behavior at the time it was happening. If not, she should get busy pursuing her profession instead of being a clandestine mouthpiece for the people who destroyed our life savings.
Whether tax experts, bankers or the media (like the financial times) on the 'bonus tax' as a bad idea because it might cause talent to leave Wall Street. The true focus should be on the fact that the American people have been defrauded by AIG and other banks and executives, and that this 'tax' one way to show banks that this is not acceptable to take money we gave to bail them out and misuse it.
The idea that Wall Street talent will not work if their bonuses are taxed at 90% is beside the point. With 8% unemployment and at least 5 million people on the unemployment rolls Wall Street needs to wake up and smell the coffee. When great numbers of us are facing layoffs, salary freezes, salary cuts and certainly no bonuses "given the economic situation" that Wall Street and banks have created. Then they should expect the same for themselves.
Taxing bonuses - bad idea
Taxing anyone whose salary exceeds $500k at 90% - very good idea.
The rich CEO's sit in their offices and think about things the rest of will never understand because the executive suites have become totally disconnected from the realities of the business world.
And while we are at, lets eliminate salary via stock options by barring stock option for employees after the company has been incorporated for two years. This would reward those who risked much to start a company and create jobs, but turn off the spigot for the also rans who come along later.
We are the owners of the AIG at this time.
For what ever reason as the company was tanking execs thought it a good idea to give bonuses. Stupid decision. Our Reps missed it! Bad oversight. Take it back ...you bet you. And there are plenty of people in the unemployment line (that ran their company's in the ground as well) that would gladly take any salary minus bonuses if the AIG group can't give decent days work for the pay they are getting.
As for the Wall Street journal reporter...if her boss felt that she did a lousy job they could fire her, demote her and cut her pay if they chose to. We are the boss of AIG now and until AIG figures it out and we catch they're back room deals if it requires a 100% tax great.
Does no one look at this as simple physics? This AIG bonus flap is the the national temperament venting as the anger of the public has come to a boil over the heat of the ongoing economic crises. Like a whistling teakettle, the only way to stop it is to either turn off the heat or remove the kettle from the burner. Discussing whether it's in the teakettle's best interest to whistle or not is completely beside the point.
