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Our House of Representatives
Henry Blodgett writes:
If the "TARP bonus" bill the House passed today becomes law, any of the hundreds of thousands of people who work for Citigroup, Bank of America, AIG, and nine other major US corporations will have to fork over 90 cents of every dollar they make that puts their household income over $250,000.
That's household income, not individual income.* If you're married and filing singly, you'll have to surrender anything over $125,000. Indefinitely.
Read the whole thing. There is this too:
The really distressing part is what this tax will do to the corporations that we now own and are supposedly trying to save.
(Remember? That's the reason we bailed Citigroup, AIG, GM, and the rest of them out--to save them. Because we convinced ourselves that civilization would end if we didn't.)
Thanks to our stupidity bailouts, we now own major stakes in these firms (at mind-boggling expense). So it's not clear why we want to destroy them. But that's what we seem determined to do.
Addendum: Here is one of many stories about death threats against A.I.G. employees.
Posted by Tyler Cowen on March 20, 2009 at 08:38 AM in Economics | Permalink
Comments
I wonder how long inflation will take to make $125K a trivial amount.
Posted by: Michael at Mar 20, 2009 9:03:27 AM
Alternative point of view: they were bailed out to avoid collateral damage; to save other institutions and businesses which relied on them. The employees are already strictly better off than they would have been in a bankruptcy. This is a cost control measure, and pretty much the only retribution possible for the fault involved in building a bubble and then bursting it.
Posted by: Pete at Mar 20, 2009 9:13:54 AM
That would teach them to not take welfare. smile
Posted by: floccina at Mar 20, 2009 9:16:16 AM
I went out and found the text of HR 1586 at http://thomas.loc.gov/cgi-bin/query/z?c111:H.R.1586: and what Blodgett is saying seems to be true. Now think of this for a moment, you are a successful professional making over 250k and your spouse is a part-time teller at Bank of America, everything that you together make over 250k is now gone. No, not class warfare at all, move along there is nothing to see here.
Posted by: John at Mar 20, 2009 9:27:34 AM
Now the big bankers know what it feels like to whipped about by a VC group.
Posted by: joe at Mar 20, 2009 9:38:52 AM
Tyler wanted socialism, now he gets socialism.
Remember "The Paulson Plan is better than nothing".
Posted by: Gabe at Mar 20, 2009 9:40:47 AM
Will this bill destroy these companies? It really depends on how valuable the people who would be hurt by this are to other institutions that are unaffected by this measure. I'm sort of suspicious of how many openings there will be for tainted six figure salary finance types at least in the short term. I'm also not sure about how transferable the skill set of reckless leveraged trading is to financial stewardship. Could it be that absent the ability to work with less risk and leverage these high earners are actually worth much less than they are used to receiving? These are meant as questions not statements.
I suspect that this bill is overkill, and if the state is going to control the company in this way they should probably adjust the dials more incrementally since the potential impacts are so poorly understood.
Posted by: Michael Foody at Mar 20, 2009 9:41:04 AM
"If you work, pay taxes, and make less than $200,000, you'll get a tax cut."
Barack Obama, Wall Street Journal, November 3, 2008
Posted by: Ed S at Mar 20, 2009 9:44:28 AM
This is like what used to happen to Jews in Europe. The government made up a scandal, blamed it on a group, then used the public furor as an excuse to appropriate the group's wealth. These people have homes with mortgages and fixed expenses. They are going to have to leave their jobs or work for slave wages. Contracts made to them aren't considered valid. They have to live in fear of their lives. And all because of their class.
Forget FDR or Lincoln, Obama is somewhere between Hitler and Stalin.
Posted by: Jason (the commenter) at Mar 20, 2009 10:04:14 AM
What did they think was going to happen? The only thing that I find odd is that the BofA/Merrill bonuses didn't start a similar outrage.
Posted by: MH at Mar 20, 2009 10:08:54 AM
"Forget FDR or Lincoln, Obama is somewhere between Hitler and Stalin."
i'm giving this the 'most absurd comment on the internets this week' award. obviously, restructuring the tax rate for a tiny minority of the upper class is identical to instigating the genocide of millions. if you make more than $250k a year, and you're complaining, you'll never earn my sympathy. never, never, never.
and while we're at it?
"They are going to have to leave their jobs or work for slave wages."
welcome to the america most of us live in. somehow, we get by.
Posted by: ibaien at Mar 20, 2009 10:22:36 AM
#1 The bill applies to bonuses paid after 12/31/08, so Goldman's bonuses are safe, and that's all that really matters
#2 It doesn't address the bonuses paid by banks that got tens of billions from AIG (including Goldman's $13,000,000,000)
#3 It doesn't reach the Hundreds of thousands given by AIG to Obama, Dodd and other politicians.
Posted by: guy in a veal calf office at Mar 20, 2009 10:26:19 AM
@John: If you're going to make a citation, you could at least read it yourself. Have a look at 1.b.1.A. In your hypothetical case, 'lesser of' would be equal to zero. So the teller's family would have no liability under this bill.
Posted by: mc at Mar 20, 2009 10:27:10 AM
The banks have a lot of it and technical staff who can get jobs elsewhere. Do you want to lose the top information security experts working to keep accounts from hackers? At profitable banks forced into TARP? Or the lawyers, stock brokers, etc? At a commercial bank very few people are traders or executives with non trsnsfersble skills
Posted by: Anonymouse at Mar 20, 2009 10:29:04 AM
John @ 9:27,
I disagree. It sounds like it's the LESSER of bonus payments or payments over $250k. So basically,
"rich" people's bonuses. Unless the bank teller is getting bonuses, her househould won't owe any add'l tax.
That said, it's still a stupid idea.
Posted by: Allen at Mar 20, 2009 10:30:26 AM
-- "They are going to have to leave their jobs or work for slave wages."
-- welcome to the america most of us live in.
Most of us are living on slave wages in America? Really? Congratulations, you just responded to the 'most absurd comment on the internets this week' with a profoundly absurd comment of your own.
Posted by: mm at Mar 20, 2009 10:31:02 AM
Especially upsetting because TARP funds were more or less not optional for many banks who wanted to reject them to signal their strength, which is the opposite of what the government wanted them to do so as to not hint about the weakness of others.
Posted by: jay at Mar 20, 2009 10:31:52 AM
Blodget read the bill incorrectly the first time. Here is the relevant passage:
"1) IN GENERAL- The term `TARP bonus' means, with respect to any individual for any taxable year, 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 "TARP Bonus" is the lesser of 1) the disqualified bonus 2) The total aggregate salary - 250K.
So the TARP bonuses are taxed at 90%, unless salary + bonus - 250K is less than the bonus, then the difference of compensation - 250k is taxed.
Here are some cases:
-Make $10 million in salary + 100K in bonus. [10 mil - 250k is greater than 100k, so 100k bonus is taxed at 90%)
-Single and make 180K, receive 75K bonus (difference between total compensation 255K - 250K is less than bonus 75k) so person is taxed 5K at 90 percent.
I don't know how married peoples taxes work and if "taxpayer" and "individual" counts as household for joint filers. But it seems clear that this is just a tax on bonuses with a carve out so that lower level/ lower salary people keep much more of their bonus.
Posted by: Charlie at Mar 20, 2009 10:43:08 AM
Simple solution: if you don't like the taxes, leave.
I am sure there are millions of people who would gladly work for less than $250k. The only question is whether those people could do the job.
Posted by: Allan at Mar 20, 2009 10:45:24 AM
"Most of us are living on slave wages in America? Really?"
You don't do sarcasm much, do you?
Posted by: ogmb at Mar 20, 2009 10:50:07 AM
I am SOOOO loving this. Poor liddle peoples having to subsist on $250K or less. Oh think of the children.
Let me emphasize: I dearly dearly love getting to experience at 2nd (or third?) hand Tyler's (and the rest of the fat cats) angst.
Woot! Made my day. Keep this category of posts flowing!
I do want to respond to this:
"At a commercial bank very few people are traders or executives with non trsnsfersble skills"
I posted my resume (I'm a data plumber) to dice.com a while back and got about 75 calls, nationwide. About 15 of those were for cattle call positions at bloomberg. Not one other thing in NYC. I suspect that most will stay put.
Posted by: Russell L. Carter at Mar 20, 2009 10:51:16 AM
> I am sure there are millions of people who would gladly work for less than $250k. The only question is whether those people could do the job.
It's wicked hard to find people who can do these jobs well. If you can't pay them, they won't do it.
It's also very silly to loan someone money (remember: TARP is a loan, and at this point only AIG and C are essentially written off) and then interfere with their livelihood. By doing this you have made it impossible for the banks to make certain investments.
I'm not arguing in general against confiscatory taxes, but I think that these thresholds are far too low.
Posted by: babar at Mar 20, 2009 10:58:02 AM
There is a much larger issue here.
The US is critically dependent on overseas funding. All those trillion-dollar stimulus and bailout packages will blow up spectacularly without it.
The one thing the US has had going for it is a reputation as a safe haven. US long-term interest rates have benefited enormously from the "flight to quality" to US Treasury debt, from riskier assets and riskier countries.
A newfound, well-deserved reputation for gibbering demagoguery (and willingness to tear up contracts) will hurt the US very, very badly. The world is surely watching very closely and taking notes.
Posted by: at Mar 20, 2009 10:58:13 AM
Tyler, either you've misquoted Blogett or he's changed his article, but it now reads "fork over 90 cents of every bonus dollar."
Someone here doesn't know how to read bills. Admittedly they're confusing, but journalists are responsible for reporting truthfully. This bill ONLY applies to bonuses - not normal income above 250k. So all these bankers are free to keep drawing seven-figure salaries. He is right about one thing though - if the lowly teller who married a lawyer receives a bonus he/she will have it taxed (unless he/she decides to file separately of course).
Go read for yourself and stop passing around misinformation: HR 1586 at http://thomas.loc.gov
Posted by: Patrick at Mar 20, 2009 11:02:53 AM
> Simple solution: if you don't like the taxes, leave.
And lots of people will leave. They will work for the same companies, in other countries. They'll leave the US to be run by hedge funds, none of which get TARP.
Posted by: babar at Mar 20, 2009 11:04:21 AM
