Just when the lefty powers that be seemingly found their perfect villains, bailout enabled bonuses, but along comes Henry Blodget with some really inconvenient facts. The House recently passed a 90% tax on any household income exceeding $250,000 for employees of firms that have accepted federal bailout funds. Blodget points out the following:
- The U.S. taxpayers bailed out those firms to ensure they survived.
- The U.S. taxpayers now own a major stake in those firms.
- When young professionals at those firms realize that their family’s pay will be capped at $250,000 indefinitely, they will have a strong incentive to leave those firms.
- Which ones will stay? The ones who don’t have the ambition, skill, or time to make more than $250,000 a year.
So in effect, we U.S. taxpayers have invested in companies which will increasingly by staffed by persons who would not be hired elsewhere. Would you want to buy stock in that company?
The frantic passage of the Populist Rage [90%] 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.
Seriously, you gotta feel for the left. It was just so much easier to hate President Bush.
Article referenced is copied in full at end of post.
90% Tax? Now We Really ARE Screwed
Henry Blodget|Mar. 19, 2009, 10:01 PM|comment168
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.
In case you’ve been too outraged by AIG (justifiably) to notice what happened, here’s a recap:
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 bonus dollar 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.* [See the comments below for a discussion of the mechanics of this.]
Is $250,000 per household a lot of money? Sure. But it’s not a lot of money for two moderately successful corporate executives. Or a corporate secretary married to a lawyer. (If you’re a $40,000 a year telemarketer at a TARP company married to a $210,000 lawyer, any bonus will be taxed). So this tax will be felt by a lot more than the handful of execs at AIG and Merrill who ran off with several million dollars apiece.
But that’s not the really distressing part. 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.
Believe it or not, hidden inside these companies are thousands of decent, competent people whose households bring in more than $250,000 a year. Many of these folks had NOTHING to do with the gambling addiction that bankrupted their firms. Many of them still have a choice where to work. And now that they’ve learned that their family’s pay will be capped at $250,000 indefinitely, many of them will quickly decide that now is a good time to pursue their careers elsewhere. (That is, unless their firm takes the easy and obvious step of just paying them a fatter salary, which just renders the whole thing a farce.)
Will everyone leave these firms? No. The folks whose households don’t have the education, desire, ambition, skill, or time to make more than $250,000 a year won’t. But a lot of the rest will. And however little our massive investments in these companies are worth now, they will soon be worth a lot less.
The real lesson here, unfortunately, is that it’s a disaster for the government to run private companies. We used to understand that. But ever since we started telling ourselves that we had to save bankrupt institutions by taking them over and pretending not to “nationalize” them, we have apparently forgotten.
Originally, I read the bill as applying to all income over $250,000. As you can see in the comments, several readers believe it applies only to bonuses, not income.
I feel the same way about the tax even if it only applies to bonuses, because then it is preposterously easy to get around (just raise base salary) and will be almost equally bad for the companies (pay will no longer will pay have anything to do with performance, and the best folks will still leave.) I’ve included the relevant section of the bill below:
(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).