Back to the future on taxing bonuses

Congress continues to wrestle with ways to curb bonuses given to executives and high producers in the finance industry. At present only institutions that have received federal bailout money must comply — and they are balking. One defended a $100 million signing bonus as necessary for it to compete.
To argue that any individual can possibly be worth $100 million on his first day at work will strike 99.9 percent of the population as preposterous — and totally unacceptable when the $100 million is taxpayer money that could be paid back to the treasury.
Citigroup, AIG and others respond that they must have high performing “deal makers” to do their trading magic if they are to make the profits they need to recover their standing in the industry and begin to pay back the subsidies they have received from the government.
Possibly they are right. There may be stars in financial trading where the big bucks are made who can make a difference to a big financial firm. They should be hired.
It also seems essential to find a way to change the Wall Street culture.
The U.S. economy is still one of the strongest in the world, despite the recession. The average family does just fine with an annual income of $50,000 to $70,000, depending on various factors. One hundred million is 2,000 times 50,000. It is flat wrong to have an economy in which one man earns 2,000 times the wage of another — and wronger yet when the multiple climbs even higher, and there are millions of Americans who earn $25,000 or less a year.
Congress should be outraged that the industry that was largely responsible for throwing the world’s economy into the worst recession in over half a century is right back at the destructive game of paying enormous bonuses to traders who take enormous risks, setting the stage for the next collapse.
It should express that outrage by restructuring the income tax on individuals and businesses to make it virtually impossible for such bonuses and exorbitant wages to be paid. New income tax brackets should be created that would take virtually all income above, say, $5 million a year — a mere 100 times an average family income.
Businesses should not be allowed to count any compensation above $5 million paid to an individual as a business expense. The definition of income should be broad enough to cover stock options, travel allowances, chauffeured cars, vacation home rentals and all of the other dodges imaginative executives, boards of directors and accountants concoct.
The goal should be to change the corporate culture and to tacitly recognize the value of the work done by everyone else, while, incidentally, collecting enough tax revenue to move the country toward a balanced budget.

THOSE OF A certain age will know that this proposal is anything but radical. The top income tax bracket 50 years ago was 91 percent and kicked in for joint filers at $400,000. A couple earning $44,000 a year back then paid a tax of 59 percent on any additional dollars earned. The celebrated tax cut that President John F. Kennedy achieved still left the top bracket at 70 percent for income above $200,000. Taxing the rich was the thing to do in America when granddad was a young man.
Today’s top bracket is only half the Kennedy level: 35 percent for couples earning $372,950 or more.
Today’s gargantuan incomes for those in the top one-tenth of 1 percent are a relatively new phenomenon. Only a few years ago, heads of corporations earned about 25 times the wage of their line workers (the ones who actually produced the wealth.) That multiplier now is closer to 350.
But it’s mostly the guys and gals who are traders — manipulators is another word — who do nothing that raises the standard of living of the people, who take home wages and bonuses that often exceed the gross annual volume of fair-sized manufacturers.
Measured by what they actually produce, they don’t earn it and the fact that they receive it diminishes our democracy.

— Emerson Lynn, jr.