Bailout

Well done, Darling

By Felix Salmon

To nobody’s surprise, bankers are complaining about the UK’s 50% supertax on their bonuses this year:

The government hopes the move will encourage banks to use additional cash to shore up their capital bases, rather than pay high salaries. But banking groups have warned that penalizing high earners in the financial sector will lead to an exodus of talent overseas.

But of course this is the genius of a one-off, nationwide supertax: while any individual banker might be able to move overseas, they can’t all do that en masse. And in any case moving overseas doesn’t alter the tax status of this year’s bonus, while next year’s bonus will go back to normal taxation levels — most probably under a more plutocrat-friendly Conservative government, to boot.

So there won’t be any exodus here. And I’m surprised too at the relatively low level at which the supertax kicks in: £25,000, or about $40,000. Banks in general caused much of the UK’s extremely harsh recession — GDP is going to contract by 4.75% this year — and also are responsible for a large part of the country’s massive budget deficits. They should pay a more in taxes this year than might be indicated by their share of total income.

One-off windfall taxes and supertaxes are dangerous things to play with: you don’t want to make a habit of them. But we’re living in extraordinary times: this is exactly the year to implement them. Good for Alistair Darling.

Full post as published by Macroprudential on December 09, 2009 (boomark / email).