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Fallout: The Financial Crisis

Taxing bonuses: Is this good business?

Steve Henn Mar 20, 2009
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Fallout: The Financial Crisis

Taxing bonuses: Is this good business?

Steve Henn Mar 20, 2009
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TEXT OF STORY

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.

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