Editor’s Note: The bonus tax failed Tuesday. See full story.
Few topics have generated as much political heat between Main Street and Wall Street as the billions of dollars in bonuses handed out at financial companies that received federal bailouts. But Washington’s efforts to claim some of that money for taxpayers continue to falter.
The latest attempt is a measure authored by Democratic Sens. Jim Webb of Virginia and Barbara Boxer of California. It would impose a one-time 50 percent tax on 2009 bonuses of more than $400,000 paid by the 13 firms receiving the most federal bailout money.
The plan appears to be crumbling amid opposition from two financial industry-lobbying powerhouses and hesitation among moderate Democrats and key New York politicians, including Sen. Charles Schumer. It has little chance of surviving a procedural vote expected late Tuesday, according to legislative aides and industry lobbyists.
The New York State Comptroller recently reported that bonuses paid to New York City securities industry employees jumped 17 percent last year. JPMorgan Chase & Co. awarded its employees about $26 billion in salaries and bonuses; Goldman Sachs employees earned about $16 billion.
Webb and Boxer have pitched their tax as an act of fairness — and a way to reduce the ballooning federal deficit. “As a matter of equity, the reward should be shared with the taxpayers who made it possible,” Webb said on the Senate floor.
Webb and Boxer want the bonus tax attached as an amendment to a roughly $150 billion bill that would extend unemployment benefits and tax credits. Although technically still alive, the bonus tax is likely to be formally abandoned Tuesday after a procedural vote on the larger bill.
Lawmakers and the Obama administration have grappled with the bonus issue for months. Last March, in the wake of AIG’s payout of about $150 million in bonuses, the U.S. House overwhelmingly passed a bill imposing a 90 percent tax on bonuses awarded by bailout recipients. The Senate never passed a comparable bill.
This year, Sen. Sherrod Brown (D-Ohio) proposed a 50 percent tax on executive bonuses above $25,000. A group of House Democrats floated a similar plan. Neither has gained traction.
President Obama has his own $90 billion tax plan, which he said will “recover every single dime the American people are owed.” Rather than tax specific employees, Obama’s “financial crisis responsibility fee” would apply directly to about 50 firms with more than $50 billion in assets. Obama included the tax in his recent budget proposal.
In a letter to Sen. Charles Grassley (R-Iowa), the nonpartisan Congressional Budget Office said Obama’s plan would have a “small” impact on bailed-out firms. “The cost of the proposed fee would ultimately be borne to varying degrees by an institution’s customers, employees, and investors,” the letter said.
Webb and Boxer’s tax would apply only to 13 companies that took more than $5 billion in taxpayer funds. The proceeds would be applied toward reducing the deficit. Regulators in Britain have implemented a similar plan, called a “supertax,” which according to recent reports will reap more than $3 billion for the government.
Last week, the Senate’s number two Democrat, Richard Durbin of Illinois, signed on as a co-sponsor to Webb and Boxer’s bonus tax. Senate Majority leader Harry Reid expressed support for the plan as well.
Webb and Boxer also reached out to Republicans by targeting bonuses paid by mortgage finance giants Fannie Mae and Freddie Mac, which have elicited conservative ire for having unlimited access to taxpayer funds.
But some moderate Democrats opposed the bonus tax and sought to keep it from getting a vote, according to sources in the financial industry and on Capitol Hill. The moderates, according to one source, feared that in an election year the business lobby would target them as being pro-tax.
Some finance committee members, meanwhile, expressed hesitation because the tax didn’t go through the committee’s typical vetting process.
New York’s senators — Schumer and Kirsten Gillibrand — also raised concerns with fellow lawmakers. Their spokesmen say that the New York Democrats haven’t formally opposed the bonus tax, but would face an uncomfortable decision should it ever come to a vote.
Why uncomfortable? On the one hand, the senators have repeatedly expressed support for reining in Wall Street excess. On the other, Wall Street is a top contributor to the New York economy — and their campaigns.
“Senator Schumer is open to any proposal that will help make taxpayers fully whole after they footed the bill,” said Schumer’s spokesman Brian Falon. Schumer’s preference so far, Falon said, is Obama’s plan because it would tax firms and not employees.
New York City Mayor Michael Bloomberg, a staunch opponent of the bonus tax, added his voice to the debate.
Bloomberg’s spokesman, Marc Lavorgna, wouldn’t confirm or deny that the mayor called senators to lobby against the bonus tax, but argued that the plan “would take billions of dollars out of the City’s economy, money that would otherwise flow to small business and the middle class families who own them and work in them.”
Lobbyists fighting the bonus tax echoed these concerns.
In a letter to senators, The U.S. Chamber of Commerce, a leading business lobby in Washington, warned in a letter to senators that the tax “would hamper efforts to resolve the ongoing financial crisis, restore economic growth, spur job creation and is likely unconstitutional.” The chamber noted that employees received bonuses as part of “contractual obligations.”
The Financial Services Roundtable, a trade group representing banks including JPMorgan Chase & Co., also opposed the plan.