Taxpayer Fairness Act

I've toyed with creating a blog where I post my comments on the latest public and economic policy happenings, but after writing a fairly long letter this afternoon to Senator Boxer regarding the Taxpayer Fairness Act she is sponsoring, I decided it was time to start posting these letters I write. That way, at least someone will read them, as I am sure they get no more than 10 seconds from a staffer who simply adds "1" to the (in this case) "opposes" tally. I'll post the full text of the email at the bottom of the post, but my response includes the relevant portions of her text, so it should be easy to follow. Be sure to leave a comment if you have something to add...especially if you can, civilly, argue the opposing side.

Granted there are a lot of other issues I could raise with the Senators position, but for the sake of time, I tried to keep it brief. I know (or at least think it most likely) that this policy is grounded in political populism, and not in sound economics or equity, but if we as voters allow politicians to earn votes by appealing to unfounded emotion over rational policy, then we shouldn't be disappointed when the bills presented are poor policy but good politics. This is my small effort to re-focus the conversation on policy rather than politics.

Senator,

I just read your email up-date about the Taxpayer Fairness Act you are championing, and I'm afraid that your reasoning seems unclear. Please correct me if I have misunderstood your position. Here is what I am worried about:

1. "The Taxpayer Fairness Act levies a 50 percent taxpayer fairness fee on any bonus in excess of $400,000 paid by firms that took $5 billion or more in TARP funds." - This seems ad hoc and of unclear motivation. Why $400K? Is there some reason why bonuses above that amount are somehow unfair? Why only firms that received TARP? Why not large auto firms? These large firms can pay out large amounts of $$ in bonuses is because they are now profitable, and have been able to pay back the taxpayers. If they paid back the borrowed funds, and the govt still holds the equity of some firms, what claim do you have on the bonuses? It seems to be both ex post facto, double taxing, and punishing those industries which are successful (and ignoring struggling Detroit). Am I missing something?

2. "Although the reckless behavior of major Wall Street firms helped lead to the financial crisis, they have benefited greatly from the response to that crisis." - This also seems myopic. Certainly Wall Street contributed, but why single them out when there are lots of reckless home borrowers and mortgage brokers who were the other half the tango. Additionally, "benefited greatly" seems odd considering the enormous number of unemployed finance professionals, as well as the financial hit many took who had a large % of their personal wealth tied up in firm stock. It was those who owned bank's bonds who were the real beneficiaries.

3. "Today we face an enormous budget challenge rooted in the economic impact of the financial crisis." - Again, how can we ignoring the fact that the budget issues have existed for a long time before recent crisis, and partially attributable to the government (both state and federal), happily spending, and over-spending the supposedly ill-gotten gains of the financial markets and finance professionals.

4. "We should ask the most highly paid employees of those institutions to pay their fair share in helping us meet this challenge." - Please define "fair share." At $400K these people are already in the top marginal bracket and are paying ~50% already in taxes (state + federal). Under what framework are they underpaying? What makes an additional 50% tax appropriate?

5. "At a time when so many American families are struggling, it is only fair to ask those who are benefiting from exorbitant bonuses to help pay back the taxpayers whose assistance made their very survival possible." - Given the value these employees create for their shareholders, and the economy in general, how do you argue that the bonuses are "exorbitant?" Further, since it was THE FIRMS who took, and have since paid back,the bailout funds, why is it appropriate to seek further recourse from the employees?

I hope to hear from you about this crucial issue.

Best,

Full Text:

Dear Friend:

I want to let you know about the Taxpayer Fairness Act (S.2994), which Senator Jim Webb (D-VA) and I recently introduced in the Senate. Our bill would impose a tax on large bonuses paid by Wall Street banks and other firms that benefited from billions of dollars of taxpayer assistance in 2009.

Last year, to avert a financial collapse, taxpayers saved a number of companies that were considered “too big to fail.” It is outrageous that these companies are now doling out millions of dollars in bonuses while the rest of America feels the pain of their reckless decisions.

The Taxpayer Fairness Act levies a 50 percent taxpayer fairness fee on any bonus in excess of $400,000 paid by firms that took $5 billion or more in TARP funds. Only bonuses received in 2009 would be affected, since this was a year when the very survival of these institutions depended on government support. The revenues generated would be used to reduce the deficit or to help the nation recover from the recession.

Although the reckless behavior of major Wall Street firms helped lead to the financial crisis, they have benefited greatly from the response to that crisis. Today we face an enormous budget challenge rooted in the economic impact of the financial crisis. We should ask the most highly paid employees of those institutions to pay their fair share in helping us meet this challenge.

The Taxpayer Fairness Act is a reasonable, common-sense bill. At a time when so many American families are struggling, it is only fair to ask those who are benefiting from exorbitant bonuses to help pay back the taxpayers whose assistance made their very survival possible.

Sincerely,

Barbara Boxer
United States Senator