Wednesday, January 13, 2010

US Congressman introduces 75% bonus tax

US Congressman Dennis Kucinich has this on his website:

"Congressman Dennis Kucinich (D-OH) today introduced legislation to impose a 75% tax on the extraordinary bonuses that bankers are planning to pay themselves using windfall profits earned from massive taxpayer support of the financial services industry. The “Responsible Bankers Act” will not penalize banks for making a profit, but rather will tax the bonus pools that are set aside."

The chart on the right, from Mother Jones, shows what has been going on. Kucinich's move follows a statement he made on December 10, noting that:

“Leaders in Great Britain and France have recently announced proposals to tax the bonuses of financial executives--if the United States remains silent on the issue, we will in effect be leading the world in a ‘race to the bottom’ of international efforts to regulate the financial services industry."

Kucinich is known in Washington as a firebrand, but nothing of that seems to be even controversial. Bankers' bonuses weren't the centre of the financial crisis, but they were a contributing factor, and it seems right that public representatives should respond to voters' justified anger about what has been going on. This bill is very unlikely to get widespread support in Congress - certainly judging by the fact that the US media has all but ignored this new legislation.

Some action is being debated by the Obama administration, notably, as the FT puts it,

"a plan to impose a new levy on top US banks, to pay for the financial bail-out as part of the budget to be presented in February."

Naked Capitalism has a useful perspective on this, and the fact that this is being portrayed as simply a sop to public opinion:

Seeing the problem merely as “the public is angry” implies that the collective reaction is simply emotional, and by implication, unjustified.
. . .
what should these fees be about? They should, correctly, be depicted as windfall profits taxes. The US has implemented them from time to time, most notably in the 1970s oil crisis. The idea that the extraordinary profits the banks are enjoying are the result of their efforts needs to be assaulted, head on. They are almost entirely the result of continuing government intervention."

Public anger may be flagging slightly, but there's a good chance it will redouble into a real fury. The Economist, historically quite a good watcher of asset-price bubbles, has just issued another bubble warning:

"investors still have plenty of reasons to worry. The problem for them is not just that valuations look high by historic standards. It is also that the current combination of high asset prices, low interest rates and massive fiscal deficits is unsustainable."


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