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The Bonus Tax

The New York Times reports that the House has passed a bill to impose a 90% tax on bonuses that people receive from firms which have accepted more than 5 billion in bailout money. As far as I'm concerned, it's about time.

Here are the main arguments from the executives opposing the bonus tax.

1) You're punishing the little people, like the secretary receiving a $5000 bonus.

My answer to that? The tax only affects people in households making more than $250,000 a year. First off, I don't know any secretaries who make that much money. Do you? And even if said secretary is making that much, or is married to someone so that their joint income reaches that level, he or she hardly qualifies as "little people." $250,000 a year is a lot. The median wage in the U.S. ranges from about $32,000 a year in Mississippi to $50,000 a year in Connecticut.

2) If you tax bonuses that high, all the top talent will leave.

So what? All that the top talent has done so far is get us into this mess, then accept multi-million dollar bonuses and slink away. Maybe it's time for some younger, fresher blood to come in. Furthermore, the whole idea that you need to pay people an extraordinary amount of money is flawed. Look at teachers. There are some great teachers out there, who change lives. There are mediocre teachers, whose classes you sit through without learning much. There are awful teachers, the ones who make you want to skip class. They all receive roughly the same amount of money, sans bonus in many cases. And they're only getting about $40,000 a year in most cases. So - do we really need to be paying our corporate executives 10 or 15 million dollars a year?

3) People have already spent the money.

Then maybe they need to learn how to budget better, and live within their means. This may sound harsh, but I think that most of this country suffers from an inability to manage money. We buy houses and cars that we can barely afford because we feel the need to keep up with our neighbors. We take on over $100,000 in debt to attend law school with the expectation of making enough money after we graduate to pay it back (and I'm guilty of this too). There's being prudent - knowing what kind of debt you can take on and how you can pay it back - and being imprudent - buying a house whose mortgage you can't afford unless home prices continue to increase exponentially for the next ten years. Besides, the IRS has a payment plan.

You are, of course, free to disagree with me on any or all of these points, but I stand by my conviction that corporate culture needs to change, and the bonus tax is a great way to do this. And for the record, I don't believe in excessive law firm salary either - I think if we all started at $30,000 or $40,000 a year, whether in the public or private sector, lawyers would be, as a whole, more honest and more dedicated. They'd be doing the work because they wanted to, not because of the money.

Full post as published by Nuts & Boalts on March 20, 2009 (boomark / email).