As the White House pivots to a more anti-Wall Street populist posture -- in the wake of a potential loss in the Massachusetts Senate race -- legislation that some Hill Democrats are calling an ideal remedy to address widespread outrage over bank bonuses sits on the president's doorstep.
Last week, Congressman Peter Welch (D-VT) put forward a proposal that would place a 50 percent tax on executives at firms that have received TARP funds for bonuses that exceed $50,000. The money raised through the levy would fund a small business-lending program administered by the Small Business Administration.
"There's actually a very serious problem because banking has been hijacked," Welch told the Huffington Post in an interview last week. "The guys with the keys to the bank are robbing the bank. And that's why we need to do a number of things, including strong regulation."
"The bonus tax is not being presented by me as a cure-all," he added. "There are other things that we have to do to right this ship. But on the other hand, if the bankers who caused the problem are going to do self-dealing -- putting the money in their own pocket -- then when it's taxpayer money that they use to put it there, let's put it back."
For a Democratic Party that fumbled the populist perch to the Tea Party protesters and anti-bailout conservatives, Welch's proposal seems like much-needed medicine. Already, it has been co-sponsored by 29 Democratic lawmakers in the House. House Financial Services Committee Chairman Barney Frank (D-Mass) is expected to hold hearings to discuss the broader issues of bank bonuses in the weeks ahead -- at which point Welch's proposal is likely to get some form of hearing.
Whether the White House will join the crowd remains to be seen. Welch has been working closely with the administration on the president's proposal to tax TARP recipients as a means of recovering taxpayer money. But he has not had extensive discussions on the issue of taxing executive compensation, aides say. Nor do the president's advisers seem ready at this point to fully embrace the idea.
"We have looked at the issues of taxes, regulatory say-on-pay, serious things about compensation, and in particular how to give shareholders more rights to object," White House economic adviser Austan Goolsbee told the Huffington Post. "This is not just an issue for the government; the shareholders of these companies, it's coming out of their profits too. So we have been and continue to think a lot about the issue of executive compensation and how to change the incentive so it doesn't encourage excessive risky behavior... I haven't looked at [Welch's proposal], but I'm sure that will be in the list of things we consider because we're considering all the steps that are coming out of Congress."
Among Democratic officials, there is a growing belief that there is far more upside than downside to pushing proposals like Welch's. Back in February, the White House proposed capping compensation for executives at banks that take taxpayer bailout money at $500,000, only to largely drop the proposal after Republicans pushed back against it. The administration has since proposed and created a pay czar to cut down the size of bonuses at TARP firms. It is also, as Goolsbee said, gearing up for a push to implement a new executive compensation structure for firms receiving government assistance. But the appetite for more, and immediate, action clearly exists.
"There may be real substantive problems with actually doing [what Welch is proposing] but you can understand the populist appeal," said Allan Rivlin, a partner at the polling firm Hart Research. "It is a very simple story to say these bonuses come from the taxpayers and taking half back is something the voters can really understand."
Added a Democratic hill staffer working on regulatory reform topics: "The White House is doing to do what they have to do. Their approach is very much in line with the way they work... but I think a lot of people in the House feel we should take a stronger approach."
As Welch notes, there is a precedent for what he is suggesting, going back to the Depression era when the government essentially forced banks to lend out money to credit-worthy borrowers. "The government had ways of doing direct lending and basically put it to the banks and said 'if you won't lend we will,'" said Welch
But both business and politics have changed drastically since then. Among the chief concerns of those skeptical of an executive compensation tax are that it will simply be passed on to the consumers or shareholders, and it will persuade the top-flight talent at these respective firms to flee towards higher paying jobs.
The logic is strained, Welch argues. Banks don't have to pass a tax on bonuses down to consumers. Moreover, the talent that may leave for greener pastures was the same talent that got the firms in trouble in the first place.
Policy arguments aside, however, the preeminent question seems to be whether the idea is smart politics. And on that front, few people disagree that the party would stand to gain by going hard at the banks.
"It's the kind of thing the Tea Partiers as well as progressives and mainstream America really want to hear," said Representative Jan Schakowsky (D-Ill), a co-sponsor of the bill.
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