Legislation Introduced to Tax Bonuses at 90%

The House Committee on Ways and Means has announced that Rep. Charles B. Rangel (D-NY) has introduced legislation to tax executive bonuses. The legislation, if passed, would affect bonuses received after January 1, 2009. You can read the text of the bill here as a pdf.

The legislation, which has been introduced as H.R. 1586 imposes a tax of 90% on bonuses of “highly paid individuals” (meaning those with AGI of $250,000 or more) for employees of companies which have received $5 billion or more under TARP. Hmm… Who could that be? Thinking… Thinking…

Could it be AIG? And Bank of America?

Interestingly, as Congress ramps up the restrictions on TARP money, more and more banks are miraculously finding that they really don’t need the money after all. In recent weeks, banks such as Sun Bancorp, Inc., the parent company of Sun National Bank, have indicated that the program is more trouble than it’s worth; Sun says it will return the $89 million of TARP funds that it has received. Makes you wonder why they took it in the first place.

Other banks, like Wells Fargo, are already whining about the “cost” to the banks. Wells Fargo cut its dividend pay out in order to repay TARP money. Wells’ CEO, Jeff Stumpf, has said, “These actions will help us repay the government’s investment at the earliest practical date. The U.S. Treasury’s Capital Purchase Program investment is generating a return for the U.S. taxpayer — at significant cost to the company.” Um, but that’s what lenders do, right, Mr. Stumpf? They make money on loans. I guess it doesn’t feel so good in the other direction.

Meanwhile, smaller community banks are making very public the notion that they have not accepted TARP funds. Some of those banks include Auburn National Bancorporation, Inc., United Bancorp and Pennsylvania’s own Harleysville Savings Financial Corp.

The field keeps changing on this one day by day. Stay tuned!

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7 thoughts on “Legislation Introduced to Tax Bonuses at 90%

  1. It does sound like taking TARP money is a little less like a mortgage and a little more like taking a loan from the mob (or from in-laws, I guess). I can understand why these banks are behaving the way they do — normally, with a corporation, managers make decisions and then shareholders can decide whether or not they like them by buying or selling the stock. So if Intel wants to invest in a new plant, or Goldman wants to invest in a new currency trading team, they do it, and if shareholders object, they leave.

    In the long run, the shareholders who are smart end up with more money
    9and more buying power) and the companies that make bad decisions end up with less money (and unhappy shareholders). The government is short-circuiting this process by demanding veto power over decisions it thinks might be unpopular. So now, shareholders and managers have fewer choices.

    Fortunately, we at least know what we’re getting into. The government is trying play a major part in running a bunch of large financial companies. They’ve done that before — with Freddie Mac and Fannie Mae.

  2. Oh, I agree with you re TARP being a pain… But the thing is, when they were private companies, they were free to do what they wanted. As a shareholder in my own company, I run it the way that I want to. I haven’t asked the government for billions in aid, however.
    When we did apply for a line of credit for the business, eons ago, we were required to submit financial statements every quarter with additional info at the end of the year until the loan was paid off. If we had been paying ourselves – and not the bank – I’m sure we would have heard about it from the bank!

  3. Kelly, Wells Fargo didn’t want the TARP money. Paulson forced them to take it. Why shouldn’t they “whine” that the government took money out of their shareholders’ pockets?

  4. But Joe, if they’re doing so well that they could pay their shareholders, why not give the money back if they truly don’t need it? Cause they do need the money and they had an agenda that wouldn’t work without the money.

    They were one of the first big banks to take the money. And in October, they were positively gooey over TARP: “We believe the Treasury’s plan is a positive step toward providing much needed capital for financial institutions in the best position to deploy it effectively to stimulate the U.S. economy and strengthen confidence in the U.S. banking system.” – Wells Fargo Chief Financial Officer Howard Atkins

    They really did it, not for lending as the Treasury had hoped, but to acquire another failing bank – Wachovia. That whole spectacle was a political snow job, and Wells was very happy to take part. So, I have very little sympathy for them.

  5. If this is the way this law will be written, then there is no way Congress SHOULD have touched the bonuses paid BEFORE THAT DATE (see AIG). A tax law passed in 2009 can’t affect 2008 taxable income, deductions, etc. (otherwise wouldn’t it be an “ex post facto” law, and thus illegal) ?

    Whether Dodd, etc. want to admit it, they COULDN’T have stopped the AIG 2008 bonuses in 2009 because of the ex post facto problem. I wish they would have ADMITTED THAT RIGHT AWAY INSTEAD OF TRYING TO B S THEIR WAY OUT OF IT!

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