British bankers are going bonkers today after the UK government announced that it wouldn’t stand idly by as they showered themselves with obscene bonuses made possible by last year’s massive infusion of government money.
Alistair Darling, the U.K.’s Chancellor of the Exchequer — sort of like a Treasury Secretary, but with more pluck — announced today that he will impose an immediate, one-time 50-percent tax on bonuses of more than 25,000 pounds (about $40,800). That’s on top of regular income taxes.
The New York Times calls it “the most direct attack on bonuses anywhere in the world.”
Across the pond, however — where the Wall Street titans whose companies were saved from dissolution by an infusion of hundreds of billions of taxpayer dollars are about to reward themselves with a good chunk of that money in the form of year-end bonuses — no such action is in the offing.
Our bankers apparently have nothing to fear from their government — despite the fact that an unlikely collection of commentators and industry insiders from the left and right has made a compelling case that American taxpayers could and should reclaim some of the industry’s profits, by effectively treating them like lottery winnings and subjecting them to a windfall profits tax.
Such taxes have been used by governments throughout history as a check against sudden, unexpected gains in corporate earnings. The tax’s backers point to one central argument: Much of Wall Street’s imminent largesse is not the product of skill, but is a direct result of taxpayer support. In other words, Wall Street’s earnings have been an unexpected transfer of wealth from taxpayers.
It’s hardly an argument solely on the left. Martin Wolf, the chief economic columnist for the Financial Times, endorsed the idea last month. Windfall taxes, generally speaking, are a “ghastly idea,” he wrote. But in this case, the banking windfalls “are, as George Soros has said, ‘hidden gifts’ from the state. What the state gives, the state is entitled to take back, if it is not used for the state’s purposes.”
The Wall Street Journal‘s Simon Nixon wrote in October: “This year’s bank profits are windfalls in the purest sense. They aren’t the due rewards for exceptional skill but gifts from taxpayers. Many banks are earning huge, risk-free profits borrowing from central banks at ultralow interest rates and lending back to governments at much-higher rates. If this giant, hidden subsidy was being used to support new lending, fair enough. Instead, it looks destined for bankers’ pockets.”
But the time to implement a windfall profit tax in the U.S. is running short. Firms like Goldman Sachs, which has set aside $16.7 billion for bonuses, are set to pay out the money in early January. Goldman’s compensation pool is on pace to rank as the largest in the company’s history.
And yet there is no political will for any sort of clawback, either on Capitol Hill or in the White House.
House Financial Services Chairman Barney Frank told the Huffington Post that while he supports higher taxes generally, there’s been at best muted interest among his colleagues for a windfall tax on financial profits.
Christina Romer, chair of the White House Council of Economic Advisers, ducked MSNBC host Dylan Ratigan’s questions about such a tax just last week.
For his part, the U.K’s Darling said that he wants to use the tax to create a “permanent culture shift” in London’s financial center.
And in 1980, when lawmakers rolled back decades of industry regulation in the oil industry, the Carter administration implemented the tax to keep profits in check. In that case, the government’s action was viewed as resulting in a direct — and unearned — windfall for the oil industry.
In 1997, the United Kingdom used a one-off version of the tax to claw back funds lost to the taxpayer during the privatization of the nation’s utilities. And in 1981, to counteract to the nation’s high interest rates, Margaret Thatcher levied a windfall profit tax on U.K. banks.
How much of Wall Street’s profits are directly the result of taxpayer-funded government intervention? Even Treasury Secretary Tim Geithner says that none of Wall Street’s big institutions would have survived without it.
So isn’t that our money?