The 102% Tax
Forget stabilizing the financial system. Congress is hungry for revenge.
JAMES TARANTO
"The House passed legislation Thursday that would significantly curb Wall Street bonuses this year, as lawmakers from both parties echoed popular outrage over big payouts to employees of American International Group Inc. after the ailing insurance giant took billions of dollars in taxpayer money," The Wall Street Journal reports. "Significantly curb" is an understatement:
The House measure was approved on a 328-93 vote and would impose a 90% surtax on bonuses granted to employees who earn more than $250,000 at companies that have received at least $5 billion from the government's financial rescue program. The bonus tax, if approved by the Senate and signed into law, would be retroactive to Dec. 31, 2008.
The text of the bill makes clear that the 90% tax on bonuses would be in lieu of the ordinary income tax and alternative minimum tax, although those levies would still apply to all other income.
Yet some employees would end up being taxed on their bonuses at an aggregate rate exceeding 100%. Bonuses are also subject to the Medicare FICA tax of 1.45% (not counting the employer's portion), bringing the total federal take to 91.45%. Employees are also liable for state and local income taxes, which would not be deductible from the bonus tax. For an employee living in New York City, the state and local rates are 6.85% and 3.648%, respectively. Add it all up and the tax liability comes to 101.948%.
The Journal notes that "companies could escape the tax by repaying enough government aid," which sounds like a plus for the taxpayer but isn't necessarily good policy:
Some Wall Street firms have formally applied to repay the government ahead of schedule, and the new tax is spurring talk among others. But regulators have been leery of allowing firms to repay, in part because it could complicate efforts to promote stability in the financial system.
This last point is crucial. The purpose of bailing out financial insitutions--whether or not it was a wise policy--was to promote stability, for the benefit not of those insitutions but of the economy as a whole. Congress's lust to punish employees of financial firms, regardless of whether they individually were guilty of wrongdoing or mismanagement, only promotes instability. "It's like they're throwing a grenade at the problem, hitting the good and the bad at the same time," Wall Street recruiter Gustavo Dolfino tells the Journal.
As for President Obama, he is trying to have it both ways:
Obama issued a statement that aides said was intentionally lukewarm. In it, he said the House vote "rightly reflects the outrage that so many feel" over the bonuses, but it didn't mention the substance of the bill. In an appearance later on "The Tonight Show with Jay Leno," Mr. Obama said he understands the frustration. "Everybody's angry," he said. "But I think that the best way to handle this is to make sure that you close the door before the horse gets out of the barn. And what happened here was the money's already gone out, and people are scrambling to try to find ways to get back at them."
But privately, there's concern within the Obama administration that the angry political atmosphere now surrounding the federal bailout program will scare away private participants the government needs to help bolster the financial system.
In endorsing Obama last year, the Washington Post described the next president as "a man of supple intelligence, with a nuanced grasp of complex issues and evident skill at conciliation and consensus-building." This would be a good time to employ those talents. A show of leadership, including a firm pledge to veto any punitive tax legislation that reaches his desk, could help calm the storm that threatens to make the current crisis much more destructive.
Now He Tells Us!
"Obama Asks Americans Not to Expect Too Much From Him"--headline, Associated Press, March 20
'Out, Damn'd Spot! Out, I Say!'
"Speaker Nancy Pelosi (D-Calif.) is washing her hands of responsibility for what has been dubbed the 'AIG loophole,' a provision in the stimulus package that allowed executives of the bailed-out company to receive bonuses."--Roll Call, March 19
Life Imitates 'South Park'
- Protesters: "No war! No war! No war! No war! No war! No war! No war! No war! No war!" Counselor Mackey: "No war, m'kay?! No war, m'kay?! Oh uh, here you go, boys. These will help you protest. It's good to see that you care about peace, boys, m'kay? No war, m'kay?!"--dialogue from "I'm a Little Bit Country," aired April 9, 2003
- "Anti-AIG Demonstrations Draw Small, Animated Crowds"--headline, Reuters, March 20, 2009
The Neediest Cases
There's a weird disconnect in the media coverage of the current financial panic. On the one hand, we're supposed to be angry at people in the financial industry, both for being rich and for being irresponsible or worse. On the other hand, we're supposed to feel sorry for guys like Ken Karpman, profiled by ABC News.
Karpman spent 20 years as a trader, making as much as $750,000 a year. Now he is reduced to delivering pizza for $7.29 an hour plus tips:
It's money that he's grateful to earn, even when it means delivering to neighbors or his old office building.
"This whole progression down, it's amazing how many things you say, 'I can't do' and a week later you say, 'Yeah, I could do that,' " he said. "I'm not going to make a career out of this but, until I get something that pays more, this is what I'll do to keep food on the table."
Certainly it's to Karpman's credit that he doesn't think he's too good to work as a pizza man. But ABC's description of the "progression down" makes it sound as though he is largely the victim of his own imprudence and hubris:
Karpman was so confident in his good fortune and the strong economy that he left his job in 2005 to start his own hedge fund. To pay for the new business and their standard of living, Karpman quickly burned through $500,000 in savings and, like so many Americans, took a line of credit against his house.
But in the reversal of fortune that followed, Karpman was unable to attract investors and was forced to dissolve his hedge fund. He found himself jobless in a job market that had collapsed.
In the past, Karpman had found it easy to get a job. It wasn't so this time around.
"When I used to go into a job interview, I probably came across as a jerk because I was like interviewing him to see whether this firm was worthy of me," he said. "Now it's kind of like you almost feel like you're coming in with your hat in your hand."
The Karpmans still are not living within their means--although they are on food stamps, their children attend private schools, at a cost of $30,000 a year, thanks to an anonymous benefactor. A commenter on the ABC site gets it about right (quoting verbatim): "Everyone who reads this article should take away that if they ever get luckily enough to may some big $, they should save it for a rainy day and not blow it all. "
Gutter Ball
When George W. Bush was president, there were journalists who devoted themselves to cataloguing his verbal pratfalls. Slate, the online magazine, even had a whole feature called "Bushism of the Day," which led to a series of books. We guess with Obama, the gaffes are so numerous that no one can chronicle them all. But this one, reported by ABC's Jake Tapper is especially embarrassing:
President Obama, in his taping with Jay Leno Thursday afternoon, attempted to yuk it up with the funnyman, and ended up insulting the disabled.
Towards the end of his approximately 40-minute appearance, the president talked about how he's gotten better at bowling and has been practicing in the White House bowling alley.
He bowled a 129, the president said.
"That's very good, Mr. President," Leno said sarcastically.
It's "like the Special Olympics or something," the president said.
Obama quickly called Special Olympics chairman Tim Shriver to grovel.
Appearing on "Good Morning America," Shriver "pointed out that in Detroit there's a Special Olympian who has bowled three perfect games." Now that's just mean.
Wannabe Pundits
David Zurawik, television critic for the Baltimore Sun, is annoyed by speculation about the killing off of characters on fictional TV shows. Naturally, he devotes a column to it--and, since the whole topic is unworthy of it, he throws in some political commentary:
So, instead of wasting 20 minutes of your time speculating whether or not Edie is going to die on Desperate Housewives, tune into President Obama's next press conference and try to figure out whether you should support his latest economic plan based on what YOU heard HIM say on TV--rather than what Rush Limbaugh (on the right) or Bill Moyers (on the left) told you to think of the plan.
Isn't it a bit self-defeating for a critic to advise his readers to ignore the critics?
Homer Nods
One point five percent of $60,000 is $900, not $750 as we said in yesterday's column (since corrected). We initially did the calculation for $50,000, then forgot to recalculate when we changed the base amount.
Also, we might have erred in saying that $60,000 in taxable income is slightly below the Chicago-area median for a family of four. A reader informs us that in addition to the personal exemptions, which we accounted for, Illinois tax law allows homeowners to take a credit for property taxes paid and a "homestead" exemption.
End of an Odyssey
"Whitey Lockman Dies at 82; Set Up Epic Homer"--headline, New York Times, March 20
Now They Make $2,000,000,006.65 an Hour
"Wal-Mart Adds $2b to Hourly Workers' Pay"--headline, Boston Globe, March 20
The Butterfly Must've Flown In From Somewhere Else
"No Suspicious Package Found at Caterpillar Facility"--headline, WEEK-TV Web site (Peoria, Ill.), March 20
Jurassic Narc
"Famed Fossil Hunter to Admit Dinosaur Crimes"--headline, Associated Press, March 19
We've Always Hated Those Researchers
"Carrying Grudges Hurts Your Health, Researcher Says"--headline, Kalamazoo (Mich.) Gazette, March 19
It's Always in the Last Place You Look
" 'World's Deadliest Spider' Found in Whole Foods Produce Section"--headline, FoxNews.com, March 20
Is It Take Our Daughters to Work Day Already?
"Woman Takes Children on Robbery Spree"--headline, Associated Press, March 20
Help Wanted
" 'Goodfellas' Mobster Sought"--headline, Richmond Times-Dispatch, March 20
Everything Seemingly Is Spinning Out of Control
- "Outrage at Government Campaign That Says Condoms Make Women Sexier"--headline, Daily Mail (London), March 20
- "Easter Bunny Latest Recession Victim"--headline, Crain's New York Business, March 19
- "Police: Naked Boy, 14, on Walk With Dog, Pushes Woman, Breaks Phone"--headline, Ludington (Mich.) Daily News, March 19
- "Gordon Brown Is Frustrated by 'Psycho' in No 10"--headline, Daily Telegraph (London), March 18
News of the Tautological
"Grilling Leads to Small Fire"--headline, Journal Times (Racine, Wis.), March 19
News You Can Use
- "Men Would Rather Date Beautiful Bimbos Than Ugly, Clever Women, Finds Survey"--headline, Daily Telegraph (London), March 20
- "Now's the Best Time to Be Looking Your Best"--headline, Ann Arbor (Mich.) News, March 19
- "Maggots Are No Better in Healing Ulcers Than Gel, Study Finds"--headline, Bloomberg, March 20
- "Richardson's Death Shows Need to Protect Brain"--headline, Reuters, March 19
Bottom Stories of the Day
- "LA Police Cite Rihanna's Driver: No Front Plate"--headline, Associated Press, March 19
- "Charles Manson Spends Most of His Time Alone"--headline, CNN.com, March 20
I Like to Watch
"On Friday, Michelle Obama will begin digging up a patch of White House lawn to plant a vegetable garden, the first since Eleanor Roosevelt's victory garden in World War II," the New York Times reports:
While the organic garden will provide food for the first family's meals and formal dinners, its most important role, Mrs. Obama said, will be to educate children about healthful, locally grown fruit and vegetables at time when obesity has become a national concern.
In an interview in her office, Mrs. Obama said, "My hope is that through children, they will begin to educate their families and that will, in turn, begin to educate our communities."
Blogger David Gerstman, though, wonders if the president will ask his garden for economic advice. He reminds us of this exchange from the 1979 film "Being There":
President "Bobby": Mr. Gardner, do you agree with Ben, or do you think that we can stimulate growth through temporary incentives?
[Long pause]
Chance the Gardener: As long as the roots are not severed, all is well. And all will be well in the garden.
President "Bobby": In the garden.
Chance the Gardener: Yes. In the garden, growth has its seasons. First comes spring and summer, but then we have fall and winter. And then we get spring and summer again.
President "Bobby": Spring and summer.
Chance the Gardener: Yes.
President "Bobby": Then fall and winter.
Chance the Gardener: Yes.
Benjamin Rand: I think what our insightful young friend is saying is that we welcome the inevitable seasons of nature, but we're upset by the seasons of our economy.
Chance the Gardener: Yes! There will be growth in the spring!
Benjamin Rand: Hmm!
Chance the Gardener: Hmm!
President "Bobby": Hm. Well, Mr. Gardner, I must admit that is one of the most refreshing and optimistic statements I've heard in a very, very long time.
[Benjamin Rand applauds]
President "Bobby": I admire your good, solid sense. That's precisely what we lack on Capitol Hill.
The Times adds that "twenty-three fifth graders from Bancroft Elementary School in Washington will help her dig up the soil for the 1,100-square-foot plot. . . . Students from the school, which has had a garden since 2001, will also help plant, harvest and cook the vegetables, berries and herbs."
So much for hopes, and fears, that President Obama is going to follow in the footsteps of Franklin D. Roosevelt. Turns out he's not even going to adhere to FDR's child-labor laws!
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