On Thursday March 19, 2009 the United States House of Representatives approved a 90% tax on bonuses paid to employees of corporations which received bailout money in excess of 5 billion dollars. Pundits agree something had to been done to prevent these massive government funded bonus’ from being paid out however a massive tax, a tax which lacks support of the Senate, is not the answer. Orin Kramer, a prominent fundraiser for President Obama pointed out: “If this stands, you will destroy the value of institutions where the government is an owner,â€? … “You will drive people away from being willing to do business with the government,â€?. AIG’s stance is that they were contractually obligated to pay these “bonus” payments.
The real problem in this situation is that most of the bonus’ in question are actually not bonus’ at all. Rather they are a deferred lump sum payment. A long standing practice in the corporate world which helps to dually limit the wages of hourly employees, and defer payment of large portions of salary to higher level/higher paid employees. The real problem is the incorrect application of the word “bonus” to these payments. Referring to them as a bonus infers the uncertainty of receipt, when in effect they are nothing more than a deferred salary payment.
Most people will agree $250k is a lot of money. Certainly more than the average middle class family makes (even those middle class living in the more affluent areas). In the corporate world however, $250k is not a high level salary. Many of the employees at this salary level would have looked for work elsewhere if the salaries were not at this level; possibly with foreign lenders. By taxing the “very successful” this heavily we are doing nothing more than penalizing citizens for their success. It’s difficult for those in lower income brackets to sympathize with those in higher income brackets, but you cant just say: they are rich – they can sell their car, they can downsize their house, they can stop sending their kids to that expensive college. Just because these families have a household income of $250k doesn’t mean they have mattresses stuffed with money. Sure they may have a more expensive house, or a more expensive car, but they have worked to achieve this standard of living. This is exactly what capitalism is all about. Now we are penalizing the successful for achieving more than the average Joe, which goes against everything our free market capitalist society stands for.
If George W. Bush committed impeachable offenses as touted by the liberal media worldwide, then members of the 111th congress have as well. Guilty of undermining everything this nation has done to establish itself as one of the worlds most successful free market capitalist societies. Rather than taking these companies to court and trying to prevent these payouts, congress has circumvented a lack of legal standing by imposing one of the harshest taxes the world has ever seen.
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I agree with you that bonuses are required in order for a company to keep the most intelligent, best employees. This is infact part of capitalism in general. My grandfather always had a saying that he would pay his employees what they are worth. If someone is getting $5million (bonus or salary) a year they must be worth it, or have succeded in having the shareholders, board of directors believe they are.
AIG has used a “loophole” made possible from the recent stimulus package. While I do agree the economy needs a boost I also was quite concerned about the speed at which the stimulus package was put through. Perhaps more analysis of the wording would have done well here.
While the initial 165 million may sound alarming, people do need to realize that AIG was bailed out to the tune of 170 billion, making this less than .1%
Lastly I disagre with your comment regarding bonuses as “infers the uncertainty of receipt”. Simply because many ceo’s and executives especially in the banking sector have not recieved or have recieved significantly smaller bonuses.