Early this afternoon, Senator Barbara Boxer (D-Calif.) interrupted her campaign to raise energy prices on all Americans through the Cap and Trade program to step onto the Senate floor with a new proposal unrelated to Science. (Oops! The other one is unrelated to science, too.) A Chairman of the Senate Commerce, Science and Transportation Committee, she wears many hats, and today she traded Science for Commerce. Together with Senator Jim Webb (D-Va.) of the Judiciary Committee, she’s co-sponsored the “Taxpayer ‘Fairness’ Act.” This is a windfall tax on bonuses received by
anyone who works for a company that received TARP funds and gets a bonus of over $400,000. Half of anything over that would go to the Treasury to “help reduce the deficit.”
In February 2009, Senators Jim Webb (D-VA) and Barbara Boxer (D-CA) introduced the Taxpayer Fairness Act, legislation that would recoup excessive bonuses paid by Wall Street banks and other firms that benefited from billions of taxpayer dollars in 2009. The revenues generated would be used for deficit reduction.
The bill would impose a 50 percent excise tax on the bonuses of employees at these firms that exceeded $400,000 in 2009. Any employee who received a bonus larger than $400,000 – the salary of the President of the United States – would have to pay a 50 percent tax on the portion of the bonus over $400,000. The legislation would apply only to Wall Street institutions that received more than $5 billion from the Troubled Asset Relief Program (TARP).
“We believe this is a fair and reasonable approach. It offers equity and a level of fairness to the American taxpayers who bailed these companies out,” said Senator Webb. “This is not class warfare. This is not something that’s going to run the gamut of all executive compensation and bonuses. This is a one shot deal. This is a tax on excessive bonuses of TARP recipients that received more than 5 billion dollars from the American taxpayer in 2009.”
“In September 2008, Secretary Paulson and Chairman Bernanke told the Congress that, without a $700 billion investment into the TARP program to assist our major financial institutions, our world was going to go into cataclysmic economic freefall, Webb continued. “Many of us supported that program with the understanding that, if the American taxpayers were putting $700 billion into the system in order to rescue these financial institutions, the American taxpayers would be able to get a return on their investment as well.”
In 2008 and 2009, the financial sector received unprecedented aid from taxpayers. In addition to the $700 billion TARP, there were 50 separate Federal programs offering $23 trillion in loans, grants, or asset guarantees to the financial sector, according to the nonpartisan Special Inspector General for the TARP (SIGTARP.)
MATERIALS & RESOURCES:
Read the full text of the legislation
Relevant charts and slides
Watch a highlight video from the press conference after introduction
Just a couple of points: The government doesn’t set compensation for the private sector. A lot of the companies took TARP money at the insistence of the government. In the financial sector, “bonus” is not used in the conventional meaning of the word; that is, it is not awarded for doing something out of the ordinary for which you should be rewarded. Bonuses, in most cases, are an unspecified, but normal part of the compensation package whose amount varies according to the earnings of the firm or the unit involved. It’s a custom left over from the days when most wall street firms were partnerships.
To confiscate these earnings, by government fiat, is to take that employees expected compensation. Boxer and Webb are pitching this as only fair to the taxpayer who bailed firms that “wouldn’t now exist without taxpayer money. More importantly, the money lent by the taxpayers was lent to the firms, not the employees. The employees, although benefiting by continued employment are, nevertheless, not liable for their employer’s debts. (Many of the TARP debts have already been repaid, with interest - by the firms, not the employees.) Funny that both Boxer and Webb should emphasize – without being asked – that this isn’t “class warfare.” You decide.
