Had Congress ultimately passed Sen. Ron Wyden and Sen. Olympia Snowe's proposal to tax a portion of bonuses issued by bailout recipients, the government could have raised more than $3 billion from 2008 alone, an analysis by the Joint Tax Committee showed.
Wyden and Snowe had proposed, during the crafting of the stimulus legislation, that those companies receiving TARP or bailout funds face a choice when it comes to the bonuses given to its employees: either cap those payments at $100,000, pay a 35 percent excise tax on anything above that level, or repurchase TARP shares in the amount that exceeded $100,000.
Wyden asked the Joint Tax Committee to make an estimate of just how much money such restrictions and taxes on 2008 bonuses alone would save over time. The findings, provided by his office to the Huffington Post, showed that from 2009 through 2012, the government would either retain or receive $3.189 billion (a large chunk in the first year).
Based on data showing that in 2008, financial institutions received more than $274 billion through TARP while paying out an estimated $18.4 billion in employee bonuses, the breakdown is as follows:
2009: $1.275 billion in taxes on bonuses paid back to the government
2010: $957 million
2011: $797 million
2012: $159 million
This, keep in mind, would be the revenue if the excise tax were on bonuses exceeding $100,000. With the impending reintroduction of their amendment - in the form of stand-alone legislation - the 35 percent tax would be levied on bonuses over $25,000.
The one potential hurdle to the Wyden-Snowe amendment would be legality. But on this front as well, the duo seems in the clear. The Senators had the Joint Tax Committee prepare a study on the constitutionality of their proposal in addition to the cost-benefit analysis. And the results came back favorably. Here's a PDF of the letter.
"I believe there is a powerful argument that your proposal is simply not retroactive. Taxpayers can avoid the tax completely by repurchasing shares they sold to the United States; the excise tax would be imposed, not on prior bonuses, but on the taxpayer's affirmative post-enactment decision not to repurchase those shares at the same price that the shares were sold to the United States."
"Even if the excise tax were... viewed as having retroactive effect, the Supreme Court has generally given a high level of judicial deference to economic legislation and has repeatedly upheld retroactive taxation as constitutional, so long as the legislation is 'supported by a legitimate legislative purpose furthered by rational means...'"
"Your legislative proposal presents a particularly strong case for constitutionality since it has only a modest look-back-period, as was the case in Darusmont, and is arguably a curative measure (with regard to the executive compensation provisions of TARP), as was the case in Carlton.
Edward D. Kleinbard
Chief of Staff
Joint Committee on Taxation