Is a 50% Tax on Bank Bonuses Fair?

Should the Government take half?Two Democratic senators are pushing for a tax on the bonuses that banks have handed out for the end of last year. Oh, boy.

The proposal calls for any bonus over $400,000 to be taxed at 50% for any firm that took over $5 billion in government assistance. That’s quite a line in the sand. It’s even more serious than the 35% tax on any bonus from a bailed out firm that was proposed last year. No action on that one was taken, and I can’t imagine there will be any action taken on this one either. It’s being called the Boxer-Webb proposal, and while it does ride the tone of anger across the U.S., I don’t know if it’s where the Democrats want to put their energy right now.

"We don't believe it's class warfare. We think it's eminently fair,” said Boxer.

The British government recently announced a 50% levy on large bonuses to bank employees. France is considering something similar.

As for Obama, he’s proposing a fee on banks that would collect close to $90 billion over the next 10 years. I don’t know about the projection, but I agree with the sentiment. Why try to get the money back from individuals? Tax the firms that got the loans. There is no reason to try and impose a one-time tax on employees of these companies. It is a contentious issue that will only serve to further polarize the Democrats and the Republicans. It hits the double-core: taxes and Wall Street for the Republicans.

Is it class warfare? Not really. Is it fair? Who knows.

What it is is focusing on a few individuals rather than dealing with the issue. If you take 50% of a bankers’ bonus, what do they then need to do? Make more money to get the bonus back, right? And now they are angry at the government, just like everyone who is unemployed. So now you have more people angry at you, and what would I do if I were an investment banker who just got hundreds of thousands of dollars taken away from me for something my company was responsible for? I would make a few bigger bets. I would take a risk or two to try and get that money back. I certainly wouldn’t lose any time wondering how to be better at my job because the government just taught me a lesoon.

I think it’s a bad idea.

I’m with Obama on this one. Tax the banks on their overall income. Afterall, they are the ones putting even more fees on the people with the bank accounts, not the investment bankers. Let the government get a piece of those gigantic overdraft fees. Let the government get a little of those ridiculous ATM fees. Let the government take that money and try to help people keep their homes out of foreclosure, a situation they may very well be in because of the stupid banks and investment bankers who talked them into a bad mortgage in the first place. I’d much rather that $2.50 for using the wrong ATM go to someone fighting for their financial life than to the bank.

 Photo Credit: DavidDMuir (via Flickr under CCL)