Saturday, March 21, 2009

Tax on Bonus- A perfect disaster in the wings

The frantic passage of the Populist Tax "The Bonus Act" was a new low in the US government's response to this crisis. It just amazes me and confirms to me how clueless are the politicians, and whenever we throw politicians at a problem, this is what you get. Take any country for that matter.It shows just how likely we are to doom ourselves to a decade or more of misery--by choking our markets, closing our borders, turning our banks into tools of social policy, and wrecking what's left of our economy.

Yes I am outraged by AIG people giving bonus to employees, but never in my wild dream would I have thought that congress would act in such a childish way. In the first place they don't do a good job of policing it properly and then to gain some brownie points with the voters ( please remember elections are due next year) they pass this ridiculous bill.

If the "TARP bonus" bill the House passed yesterday becomes law, any of the hundreds of thousands of people who work for Citigroup, Bank of America, AIG, and nine other major US corporations will have to fork over 90 cents of every bonus dollar that puts their household income over $250,000.

That's household income, not individual income. If you're married and filing singly, you'll have to surrender anything over $125,000. Indefinitely.

Is $250,000 per household a lot of money? Sure. But it's not a lot of money for two moderately successful corporate executives. Or a corporate secretary married to a lawyer. (If you're a $40,000 a year telemarketer at a TARP company married to a $210,000 doctor, any bonus will be taxed). So this tax will be felt by a lot more than the handful of execs at AIG and Merrill who ran off with several million dollars apiece.

Believe it or not, hidden inside these companies are thousands of decent, competent people whose households bring in more than $250,000 a year. Many of these folks had NOTHING to do with the gambling addiction that bankrupted their firms. Many of them still have a choice where to work. And now that they've learned that their family's pay will be capped at $250,000 indefinitely, many of them will quickly decide that now is a good time to pursue their careers

To begin with we gave TARP money to these companies so we can bolster their balance sheet and stabilize the market and then we do this. I am sure Banks will stand in a line to return the TARP money because we are not leaving them any option, how do they run a business when good people will not work for a company where the pay is restricted.Remember the saying 'Throw Peanuts and you will only get Monkeys".

The real lesson here, unfortunately, is that it's a disaster for the government to run private companies.

Now just imagine health Insurance also run by the government.

Let's not pretend to be a socialist economy.. we are bad at that.

Your thoughts...


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