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 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.* (The bill seems to apply only to "bonuses", although this isn't crystal clear in the wording. If so, this distinction is ludicrous: Companies will just pay execs bigger salaries.)
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.
See Also:
Protesters Plan Bus Tour Of AIG Execs' Mansions
"Jackpot Jimmy" And Other AIGers Stalked, Scorned
Follow Henry Blodget on Twitter: www.twitter.com/hblodget
http://www.truthandpolitics.org/top-rates.php
A new bracket should be created for this new 90% top marginal income tax rate, somewhere between $1,000,000 and $50,000,000 in my opinion and the marginal rate on income between $250,000 and $1,000,000 should be only about 50%. In short, money is power and the thousandth million dollars of income should be more difficult than the first million dollars. In reality, advancement is challenging, and marginal advancement gets harder, not easier. Consider weight loss; it's the last five pounds that are most difficult, not the first 30 or even more. But under our present tax structure, wealth gains are opposite of the natural order; if you can get $1,000,000 all you have to do is live prudently and invest conservatively, and no more productive work will ever be required of you again. This is unnatural.
Less abstractly, look at the table I linked above; from 1913 to now, the rich have only gotten away with top marginal tax rates below 50% during World War I, in the "Roaring Twenties" leading to the Great Depression, and in the deregulatory period leading to the current recession, 1987 - 2009. Low top marginal tax rates, and low top income brackets, are both macroeconomic Kryptonite.
The AIG bonuses were the spark that ignited a lot of pent up populist rage. And it is a justifiable rage. Yes the AIG bonuses constitute a small fraction of the bail out, but they perfectly represent what is wrong with the current system. It was the straw that broke the camel's back.
The real crime however was passing a bailout bill that had a compensation clause with absolutely no teeth and doing this counter to the public's obvious wishes. Washington, including Obama I hate to say, are just as much to blame as the folks at AIG. Now they are trying to act like no one saw something like this coming, and throwing together some silly measure to rectify their mistake.
The populist rage tax seems like typical Washington nonsense, but at least it shows that maybe the clowns in DC are finally listening to the people and not the lobbyists.
We'll see...
-- William Shakespeare, King Henry VI
"The real lesson here, unfortunately, is that it's a disaster for the government to run private companies."
Can't pick myself up from the floor, uncontrollably laughing.
Yes, the REAL lesson here is that THE GOVERMENT should not run private companies, but should instead - subsidize FOR PROFIT PRIVATE INDUSTRIES - using the taxpayers money, to pay out retainment bonuses and other expenditures, because private FOR PROFIT industries don't want to be strained or burdened with paying such costs, nor burdened with paying taxes.
And that is is why it's a DISASTER for government to STEP IN and TAKE OVER, and REPRESENT THE PEOPLE'S INTERESTS, because afterall, that might inconvenience those bailed out investors, and stockholders, and corporate welfare interests that might give the appearance of socialism being alive and well and duping 95% of America.
" 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. "
In THIS economy?? Have at it.
" So it's not clear why we want to destroy them. " Corporations feel that way about ALL regulations.
Thankfully I just got a job this week with a new company thanks to the Recovery Act, although at a 25% reduced salary until the economy recovers. I am doing my patriotic part and even at my reduced salary feel that every additional job will help the economy. If these greedy Wall Streeters cant do their job and help the American economy unless they make millions, then screw them, others will step up to the plate. Remember all those bank closures and Wall Street layoffs?
the highest tax rate WAS 90% after WW2, right through Ike's term. I beleive JKF lowered the tax rate-
And where's the outrage about the BILLION dollar Merril bonuses?
But I do love it's unintended consequence. And that is the Democrats now have some good fodder for playing with the Republicant's. They can say that 84 Republicant's (including Eric Cantor) voted for the biggest tax increase in history. They can also say that the Republicant's who didn't vote for the bill voted to allow AIG to keep their bonuses. Neither make much sense. But they make as much sense as the Republicant's saying this is all Chris Dodd's fault or like the HP headline "Geithner admits to pushing for bonus loophole (which is not true). I doubt the Democrats will use this new ammunition, but I know that I will on blogs.
Let's stop complaining about the pennies and start worrying about the big bills in Health, Education and Energy to name a few...
Congress needs to "get to work" solving our problems or they risk being painted as GREEDY like the leaders of Wall Street meltdown.