Banker Bonus Tax: UK and France are Doing it. Why not the US?

The UK has imposed a 50% tax on all banker bonuses greater than $40,000. This will be in effect for all bankks – not just the ones that were bailed out. France is in the process of approving similar legislation. In the UK, the  system will work as follows:

Banks will be charged a 50 percent tax on 2009 bonuses of more than £25,000, or $40,800. It will be imposed on the pool of bonuses paid by a bank, rather than individual payments, and it will be paid by the bank — not by the recipient of the bonus. It will take effect immediately and will affect banks’ 2009 profits.

The reasoning is straightforward: the financial firms were responsible for the financial crisis, the loss of millions of jobs, poverty, hunger, homelessness. All firms are to blame – not just the ones lucky and/or connected and/or large enough to get bailed out. So by taxing all firms, it avoids the problem of having bankers scrambling away from the duds and back into the profitable firms. An equal tax makes ’em squirm, but prevents scrambling.

France is in the process of enacting similar legislation.

In the U.S., however, where the average bonus at Goldman Sachs is $700,000 PER EMPLOYEE, yet public outcry has been muted. Even as Obama calls Wall Street to task, he hasn’t done anything about it. Is that likely to change? Probably not in the near future. The public appears to be beaten down enough to accept extreme inequality as the norm and continue to go about their lives as best they can.

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One response to “Banker Bonus Tax: UK and France are Doing it. Why not the US?

  1. Igor Konstantinovsky

    The banking industry is a bloodsucking bat squid. No arguing around that. They handle your cash and skim off the top. Sound like a slimy thing to do? Yeah. 1% fee doesn’t sound like a lot, but when your telling a pension fund to invest 100m USD in a Goldman issued note linked to the Brazilian real, its a million bucks, and takes less than a day of work to print..

    Here’s how they rationalise it:

    1. Talent: banks are known to hire some of the best and brightest academic performers. 4.O GPA is mandatory. They say pay for the talent, your money is safer with us. And while that may not be true, what is true is that bankers are often extremely talented and hard working individuals that are not easily replaced. The level and importance of many of the projects they work on requires near perfect execution, a wealth of experience and knowledge, and a lot of concentration. Not many people can pull it off. These people would do very well in nearly any business they went into, and whose to say that they wouldn’t make more money there. Banking as a profession just might be a bad trade for some.

    2. Hours and computer screens: Not many people would actually want to have a bankers job. Sure they will say they would kill for that kind of salary but the reality is that its a difficult and highly stressful job that many many people either could not handle or would not even want to handle. Its easy to be happy with a 9-5.

    You sit in front of 6 flashing screens, have a phone with 30 different lines on it, around a bunch of arrogant assholes and weird french guys, and the phones are going off all goddamn day like popcorn popping, and your there until 10pm every night or later, etc. Your the banks bitch. Sure if your an entrepreneur you would be working the same kind of hours and have just as hectic of an experience, but the difference is that you would be doing something you love and which may create a self sustaining business that will feed you money when you are no longer running it, bankers don’t have that option. Once your done your done. Its better than working at walmart no doubt, but for the people who actually work there (4.0 gpa students with serious discipline and smarts) walmart would never be an option.

    This is how they rationalise it, giving up the easy life for some cash, but in all honesty, its a golden ticket for a few college kids who aren’t afraid of working hard to reap the benefits of greed.

    3. Knowledge: not many people have the technical knowledge to do the job bankers do. Its just not that popular and fun. So bankers are rewarded for knowing what they know. In all truth, the skills and knowledge you need is not that tough, but just not taught well anywhere. If there were enough skilled bankers coming out of university to meet real demand salaries might come down. Supply and demand should apply here as well. So education just might solve the problem of inequality.

    Ok there are probably more reasons for why bankers are morally ok with such high bonuses. Just thought would be good to talk about as doesn’t seem people outside the industry ever do.

    Now, as for crisis blame game. Yeah bankers are bastards for selling crap investment they know will fail . They know their bastards. Their mothers know their bastards. We know it. They probably hate themselves a little for it. Buuuut, they couldn’t help it. All bankers want is to live like rappers and retire young. Same thing the majority of Americans want, but dont have and so are very bitter. If you do some magic and put a guy from Boston (a life long blue collar cat who has watched a hell of a lot of FOX news or something and has quite an opinion on bankers) into the shoes of a banker and he has the chance to make that much money and get out and spend the rest of his life doing good and making up for his sins you better damn believe hes gonna give you a kiss and get to work making that cashola. You cant entirely blame weak greedy people from doing wrong, they are a product of their environment, and never had ingrained in them a strong sense of morals, integrity, virtue, etc. Didnt have enough of that to restrain themselves from such strong temptation. And most people dont have that either. Lets not lie to ourselves about American’s loyalty to justice and good. AAnyway, can blab about this forever for and against bankers and citizens. Bottom line is, normal people put in this position will do the same thing..

    Now to real practical analysis.

    What might happen with 50% tax rates for bonuses:

    You think London and NY are the only places where bankers can operate? Singapore, hong kong, dubai, qatar, tokyo, etc. They will go. Many bankers are from these places.

    You think senior bankers who make their own money and decide their own bonuses will succumb to this tax? Not so sure about it. All they need to do is pay a higher initial bonus, get taxed the 50%, and bam they’ve mitigated the penalty imposed on the industry by hurting shareholders. Sure this will put a dent in their cash supply, but they will fight back, no doubt about it. And then the money will go to the government who will spend it like a retard by building a bus stop on commonwealth avenue for 8 years. Excuse me but I dont really trust the government to be the best investor of my money.

    Basically, I dont think financially hurting the financial industry is a real quality solution.

    What needs to be done is the regulation of ridiculous financial products (gambling effectively by pension funds and private clients who dont know what the hell their doing because practically no one does, the market is too complex as a whole), elimination of speculation that creates irrational volatility, forced transparency. SEC regulators should sit side by side with bankers inside the bank and regulate. Period. A bit extreme but would change the game completely.

    Sorry for the jumpiness on some arguments, a bit of a rant, but i think some good ideas in there to consider.

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