The president and Congress can quickly solve the "bonus crisis." To do so, they are going to have to get angry, stay angry and convey their anger to the public. Just like there are benefits to narrow special interests in the tax code, higher taxes can also be applied to a well-defined category of taxpayers.
It is important to act quickly so that the message and the remedies are not diluted by the intrusion of other events or the passage of time.
It is, moreover, critical to act because public support for other needed actions will evaporate if the Wall Streeters have been seen to enrich themselves at taxpayers' expense while everyone else is hunkering down. Obama's freedom of action, and thus his ultimate chance for success, will be limited if this behavior goes unredressed.
In 1962 President Kennedy had used the moral authority of his office to convince the United Steelworkers to moderate their wage demands and believed the steel companies had agreed, as a quid pro quo, to keep steel prices stable. After the union signed the deal, the companies raised their prices, by $6 per ton.
JFK was not angry. He was furious.
He did not just label the steel executives greedy and disgusting, and leave it at that. He called a press conference, read a stinging denouncement, tied it to a defiance of the public interest, and compared their behavior to American soldiers who were dying in Vietnam.
Listen:
Simultaneous and identical actions of United States Steel and other leading steel corporations, in raising steel prices by some $6 per ton, constitute a wholly unjustifiable and irresponsible defiance of the public interest.
In this serious hour of our Nation's history, when we are confronted by grave crises in Berlin and Southeast Asia, when we are devoting our energies to economic recovery and stability, when we are asking reservists to leave their homes and families for months on end and servicemen to risk their lives--and 4 were killed in the last 2 days in Vietnam--and asking union members to hold down their wage requests, at a time when restraint and sacrifice are being asked of every citizen, the American people will find it hard, as I do, to accept a situation in which a tiny handful of steel executives, whose pursuit of private power and profit exceeds their sense of public responsibility, can show such utter contempt for the interests of 185 million Americans. (Public Papers of the Presidents, John F. Kennedy, 1962, pp. 315-16).
[A few observations: it was clearly a time when a President could speak unself-consciously about the interests of 185 million Americans, the public interest and public responsibility, without a barrage of rightwing criticism like Biden received when he said that paying taxes was patriotic; substitute the names of international hot spots, and change out steel executives for Wall Street, and there is little difference other than things are worse today and thus the conduct more egregious].
Kennedy swung the full weight of the federal government behind his jawboning, and steel price increases were rescinded within a short period.
One of President Obama's most appealing character traits is that he is cool, and does not get easily flustered. That is precisely why a sustained display of anger and fury at the unconscionable bonuses and even salaries Wall Street awarded itself in the very year it has brought down the entire economy would be so appropriate and so effective.
Judging from quoted comments of Wall Streeters, they do not get it, even now. A cold shower is called for.
Congress should also be angry. Having been snookered by Henry Paulson to eliminate executive compensation restrictions in the TARP legislation, claiming that institutions would not take the TARP money if the executives could not enrich themselves, the Congress--that somehow never asked if the threat of shareholder lawsuits for allowing their companies to go bankrupt because of their own compensation restrictions would shape their behavior--can quickly and cleanly solve the bonus crisis.
The tax code has thousands of pages of benefits for narrowly-defined special interests. Analogously, the Congress should define two groups of people for special tax treatment, retroactive to 2008. The rationale is that company executives whose share price has fallen substantially, and thus have not performed for their shareholders, should not be receiving high compensation and certainly not bonuses. Beyond that, executives running companies that had to take taxpayer bail-out money, should provide the government with more revenues with which to rescue the system.
Here's how it could work: Group A would be taxpayers whose total gross compensation exceeds, say, $750,000, whose company's share price fell by >50% comparing January 1, 2008 to December 31, 2008. Group A's entire income should be taxed at a flat rate, say, of 80% with only limited allowable deductions.
Group B would include the criteria of Group A, but who were also employees of companies who received government funds under the TARP, or from the Federal Reserve; their entire income, without any allowable deductions, should be taxed at flat rate of 90%. [90% was the top tax rate under Eisenhower].
It is important to act quickly. If the remedy occurs too long after the egregious act, the message is diluted.
This is an occasion when Obama would do well to insert a figurative apostrophe in his name (O'Bama) and display a bit of JFK's Irish outrage.