I have to disagree with ScienceBlogling Mike Dunford about the proposed plan to tax 90 percent of bonuses paid out since Jan. 1 by any company that had accepted more than $5 billion in government bailout funds. I think it’s a perfectly acceptable thing to do.
So far, no one, conservative or liberal, has been able to find any constitutional grounds on which to oppose the bill. This leaves this argument:
We can’t afford to use the tax code as a political weapon. It’s wrong, and it sets a hideous precedent.
Say this to anyone familiar with the history of taxation in the U.S., and they’ll burst out laughing. We’ve engaged in all sorts of taxation policies as ‘political weapons’–that is, policy remedies. The capital gains tax was instituted because of a belief that profits made from non-inventory sales (e.g., stocks, bonds) should be taxed at a higher rate (originally, a much higher rate) than labor should be taxed. These arguments have never been made politely: phrases like ‘great malefactors of wealth’ and robber barons were the tame stuff (along with ‘welfare queens’). We used to tax all income in the highest tax bracket at ninety percent because it was viewed as good policy–and making life fairer for the little guy. And the arguments over the flat tax versus a progressive tax are nothing more than (asymmetrical) class warfare in the guise of tax policy.
We also choose to lower tax rates based on certain activities: tax deductions, or what tax economists call tax expenditures.
Dividends are taxed at lower rates than income (unless you’re in the lowest bracket). But imagine if we had a policy where the first $200,000 of dividends were taxed at the current rate (15%), and every dollar of dividends after that was taxed at a 90% rate: basically, you can live comfortably (very comfortably) if you don’t work, but if you want to live the high life, you have to pull down a paycheck. Now suppose we called this the “Paris Hilton and Nicole Richie Are Stupid Twits Act.” Is this vindictive? Or good policy? If I wanted to be vindictive, do you think I would fuck around with a tax?*
As I see it, this is Congress regaining some of the authority that it should have never ceded to either the Bush or Obama Administrations (and keep in mind that it was the Obama Administration that urged Congress to not claw back bonuses to bailed out companies in the first place). Sure, it would have been better if Congress had tried to reassert itself as a coequal branch of government during the runup to the Iraq War (for example), or the passage of TARP, but better late than never.
This is the right thing to do. And it’s good policy.
*Tuesday, while waiting in line at the deli counter at the supermarket, I heard two stock clerks talking about AIG. They were saying things like “Take their hands off, like they do in Saudi Arabia.” That’s political vindictiveness.