Posted on 03/20/2009 12:44:19 PM PDT by pissant
Taking advantage of the populist revolt against Wall Street and AIG bailouts, the House Democrats have passed a vengeance tax on TARPed financial firms that amounts to a 90 percent marginal tax rate on bonuses.
This is being done in the name of AIG outrage, and nobody wants to defend the insurance company — including me. The financial-products division helped blow up the global credit system, and it shouldn’t be rewarded. Yet one wonders about this 90 percent tax rate. If it passes the Senate, will it ever be repealed? This could be the ultimate class-warfare spread-the-wealth redistribution scheme, aimed squarely at punishing success and penalizing the so-called rich.
Note that the $250,000 cut-off point for the tax is the same line drawn in the sand in Obama’s budget for tax hikes on investors and successful earners. The president is proposing a tax rate of 40 percent, not 90 percent. But connecting the dots between Speaker Pelosi and Pres. Obama, it will be interesting to see if the president dares sign this bill.
And even though the 90 percent tax is a reaction to the AIG bonus fiasco, you have to wonder if the very-liberal-left House Democrats have a much broader agenda: to completely overturn the supply-side tax cuts of Ronald Reagan and John F. Kennedy.
A bit of history is in order. Following WWI, the Harding-Coolidge-Mellon Republicans returned the country to tax normalcy by reducing Woodrow Wilson’s 75 percent wartime tax to 25 percent — thus triggering the roaring growth of the 1920s. Then came the Depression, spawned in large part by Herbert Hoover and FDR, who raised the top tax rate to 63 percent, 70 percent, and finally 94 percent.
The Robert Taft Republican Congress elected in 1946 lowered those tax rates, but they later bounced back to 91 percent, where they held until JFK proposed sweeping tax reform in the 1960s. The top tax rate was reduced to 70 percent, igniting the 1960s boom — until it was undone by the inflationary Fed and Nixon’s de-linking of the dollar from gold. But Pres. Reagan slashed the top tax rate all the way down to 28 percent. This launched a multi-decade boom, with the top rate not straying far from Reagan’s vision.
Now, Pres. Obama has said that he has no intention of returning to the 70 or 90 percent tax rates of the past. But one wonders if the 90 percent House Democratic tax rate on so-called unearned income (bonuses) might not be the congressional tail that wags the presidential dog.
Most folks will say this scenario is farfetched. But it’s worth pondering. Is there truly a tax-the-rich hidden agenda in Washington that goes far beyond the Obama budget?
I wonder about this simply because there’s a much better way to recoup the misbegotten AIG bonuses. Though no one in Congress is paying any attention to beleaguered Treasury man Tim Geithner, he explained in a March 17 letter to Nancy Pelosi that the Treasury “will impose on AIG a contractual commitment to pay the Treasury from the operations of the company the amount of the retention awards just paid. In addition, we will deduct from the $30 billion in assistance an amount equal to the amount of those payments.” So the AIG bonus problem can be remedied in a much calmer and simpler way than returning to 90 percent tax rates.
But the bigger point is this: A 90 percent tax rate on financial bonuses is so punitive that it will surely drive away the best and brightest from the very banks that must heal the credit system. Do we really want D-minus students — who are willing to accept massive tax punishment — in charge of a trillion dollars in taxpayer money and spearheading economic recovery? The perverse incentives of tax retribution against AIG and other TARPed banks will surely backfire, and taxpayers and economic recovery will take the hit.
You see, taxes matter. They hugely impact economic behavior. The whole economic system is run on incentives to work, invest, and take risks. And it must pay, after tax, to ignite the entrepreneurial activity that really drives the economy. Like it or not, our free-market capitalist system is driven by the economic activist, provided he or she is properly rewarded.
So the real battle here in fact could be a war between the left wing of the Democratic party and the Reagan supply-side incentive model of economic growth.
Republicans in the House who just voted for massively high marginal tax rates had better think twice. When financial calm returns to the country, the GOP will not want to be accomplice to a confiscatory tax system that will stifle the economy and push America into decline for decades to come.
one thing is for sure: AIG isn’t going to get any better after this
Just run for the U.S. Senate, Larry.
In what state?
Kudlow gets it.
The Dems see the AIG bonus debacle as another opportunity
A 90% federal tax rate in combination with a high state tax rate in, say, New York or California will approach 100% confiscation of wealth. It’s looking like the communists have taken over without firing a shot.
The loophole for democrat Tarp recipients:
Annual salary: Less than $250k (adjusted downward below trigger)
Company loan: Guaranteed against bonus, not prohibited by law. Supports cashflow needs until bonus time
Bonus: Unlimited. Courtesy of the taxpayer.
Why is AIG so big they can’t fail? If the company can’t fail how is confiscating wealth from employees helping the company? I don’t get it.
Pennsylvania. He has already mentioned that he’s interested in possibly running for the U.S. Senate there in ‘10.
The Democrats want to overturn the Constitution ....
Stalled in the Senate.
Tim Geithner revealed the AIG bonuses to the news media. From there the White House choreographed reporters, congressional Democrats and even sign-carrying union “protesters” in a production of Obama political theater. When FOX News revealed the whole farce other news organizations were forced to follow.
Imagine yourself in such an organization...except four to six levels down. No bonus and pretty good chance that your boss and his boss are leaving the company within 60 days...on their own. AIG might survive on their own...but I’d say morale in this organization is pretty well shot.
Yes.
Ahem. That vote was brought to the floor under a rule requiring a 2/3rds majority vote which could not have happened without Republican support. This one truly was a bipartisan witch hunt.
These are the so called “unintended” consequences.
Because they do not want to go after a few crooks but include all of us into the guilt of a few and run checks on all of us. THe Constitution is trashed and the sheeple still acts stupid.
It’s never going to end. THey never punish the terrorists and saboters, and they even coddle with them in bed. It makes their laws more believable. Because if “a few” are dirt bags, then everyone must be a dirtbag. This has been legislative and court MO from the get go.
They will play Obambi’s unillegibility to the White House in the same way at some point into rationalizing or ignoring foreign terrorists at all levels. Bunch of blackmailed cowards.
Why are all these people pissed? Did they think they were electing anything other than a communist for president and a communist party in congress?
The government is run by D-minus imbeciles.
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