Executives at bailed-out Wall Street banks could soon take a hit to their bank accounts, as the Senate votes on a measure that could tax their bonuses at 50 percent — including on money the bankers earned last year.
Democratic Senators Jim Webb of Virginia and Barbara Boxer of California introduced a punitive income tax last month that would heavily penalize employees at banks that received TARP money. The Webb/Boxer amendment was added to the queue in the Senate on Wednesday and could come up for vote as early as Thursday.
The proposal includes a 50 percent retroactive tax on any 2009 bonus over $400,000 — the president’s annual salary — at banks that received more than $5 billion in TARP money. It also limits the income tax deduction any employer can take for paying the compensation to 50 percent.
Bonuses are a crucial portion of compensation packages on Wall Street. Lower-ranking employees often receive half their income as a bonus while the highest earners can earn several times their annual salary.
The amendment was attached to the “tax extenders act.” The tax is estimated to bring in $10 billion, though critics worry it would come as an unwelcome shock to financial markets. Both Webb and Boxer said banks which relied on taxpayer support to return to profitability owe American people a share of their success. Webb called it “a matter of basic fairness to the American taxpayers.”
Pro-business groups immediately voiced concern over how it would effect job creation.
“America needs policies that will grow jobs, allow businesses to expand and entrepreneurs to make the next big idea a reality,” said Tom Quaadman, executive director of the Chamber of Commerce’s Center for Capital Markets. “The punitive use of the tax code will continue to foster uncertainty and keep capital on the sidelines instead of creating jobs. The worker who can’t get a job, or business owner who can’t a loan will pay the ultimate consequence of this action.”
Banks that received TARP money have already repaid more than half the initial loan amount with interest — providing the Treasury with an 8 percent rate of return on their capital repurchase program.
TARP was authorized by Congress in the fall of 2008 to purchase troubled assets off the balance sheets of banks that were struggling to stay afloat. Instead, under the direction of then-Treasury Secretary Hank Paulson the $700 billion was used for capital injections into dozens of banks across the county. The proposed tax will affect 13 institutions, including Fannie Mae and Freddie Mac.
Contact Aleksandra at: ak[at]dailycaller[dot]com.