It would be difficult to find anyone who wasn't living at 1600 Pennsylvania Avenue [see footnote 1 below for what is actually snark] who isn't outraged at the idea that bank bailout funds might be used for acquisitions and bonuses to top executives:
In an unusual display of like-mindedness, the top Republican in the House and the Democratic leaders of the House and Senate sent letters to Treasury Secretary Henry Paulson about how the $700 billion in bailout funds will be used.
"Funds made available under the economic rescue package should not be used to pay for bank acquisitions, raises and executive bonuses," wrote House Republican Leader John Boehner. [cite]
Along the same lines, it is almost as difficult to find anyone who would seriously argue against the old maxim that "what is good for General Motors is good for the country." To let Detroit fail is to destroy a significant part of our manufacturing base and with it, any realistic hope we might have had of passing economic prosperity along to our children. But we only have so much money to go around....
We can solve both of these problems through creative application of the tax code.
Back in the good old Ozzie and Harriet days of unfettered capitalism, the top income tax rate was a staggering 91%. This was the federal government's equivalent of usury, and it probably deterred a lot of economic activity. President Kennedy came along and lowered the tax burden across the board, using the famous line, "A rising tide lifts all boats."
Today, we actually want to deter certain economic activity -- the looting of the Treasury by the use of taxpayer funds to pay exorbitant bonuses to financial industry executives. And the way we do that is to impose a 91% effective federal tax rate on bonuses and other compensation over $500,000 [fn. 2] to any employee of an entity which took money from the Treasury and/or entities acquired by those entities. Importantly, this would also cover so-called "golden parachutes," and could conceivably be extended to golden parachutes for other executives. Taxing Carly Fiorina? Priceless.
If the financial institutions in question used the money we gave them to pay bonuses, we would get it back, and this money would fund our bailout of Detroit. If they used it to make loans, it would free up credit for auto purchases, which would eventually help Detroit. Either way, we'd solve both problems at once. And who in their right mind would oppose it? John Boehner? George Bush? (Errrr, on second thought, strike that.)
As a matter of policy, I don't ever ask anyone to rec my diaries, but if you think this is a great idea that our leaders need to hear about, then please let them know directly.
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Footnotes:
- "I've talked to some of these people, a lot of these people, friends of mine," President Bush said, "and they're feeling the hurt. My friend Lloyd Blankfein at Goldman Sachs, guess how much he got in bonus last year? $50 million. Now guess how much he's getting this year? $45 million. That's a 10 percent drop, a pretty big hole in anybody's wallet. And I want our Congress to do something about it. I know people had to give up on buying a second jet, more comfortable jet, give up on the mile high hot tub. That's no good for a economy."
- The effective date would have to be the date the bill is introduced in Ways and Means, to keep the affected companies from front-loading the bonuses. The tax would be imposed on any amount paid to any employee of an affected entity in excess of $500,000 for the year, with an obvious exception for amounts paid prior to that date. IOW, if an executive was being paid $1,200,000 a year in base salary and was due a $1,000,000 bonus on Dec. 31, and the bill was introduced on Dec. 1, the increased tax would apply to $100,000 of base salary and the entire $1M bonus. The actual details would be left to the wizards on the W/M staff, as it may have to be imposed in the form of an excise tax. I haven't done any of the research, so I'm not prepared to offer an opinion as to the ultimate mechanics of the tax.