The bill that passed the house Thursday, which imposes a 90% tax on bonuses to people who companies receiving more than $5 billion in government money and whose household income is $250K-plus, is a bad bill. As Nate Silver points out, it’s basically a machine-gun approach to the problem, encompassing solvent firms that took the money to increase liquidity in the market at the request of the administration, auto companies, and everyone else. The provision that it applies to family income makes it worse – if you make $125k, which is a great salary but arguably not pitchforks-worthy-level-obscene, and so does your spouse (no matter where he or she works), any bonus on top of that gets nailed. It’s punitive on a lot of people who actually don’t deserve it. And Lawrence Tribe, who’d previously argued that some kind of clawback would be constitutional, says the current bill might not be constitutional because it’s, well, punitive.
If I could lay money on it – and where could I, in this economy? – I’d bet it dies in the Senate. Which wouldn’t be a bad thing, especially if it’s already managed to put the fear of God into the administration. Contra the Trib editorial board and Steve Chapman, who would prefer that you be very quiet so you don’t offend the bankers and make them set the economy on fire again, I’ve no beef with the outrage generally. I just hope that someone in Congress is clever enough to channel it, along with some of the more reasonable proposals floated by people like Silver, into legislation. Congressional aides: you should be reading these blogs.
Which is not to say that the bonuses are an enormous part of the problem. While a “drop in the bucket,” as I am sick of being reminded, the rationale for bonuses shifts from performance incentives to retention guarantees when the market turns, effectively making them not performance-based at all: “those working on Wall Street have come to regard their bonuses – their traditional share of the profits – as guaranteed compensation. They want the rewards of ownership with the security of employment. And that’s just unsustainable.”
In the NYT, David Leonhardt discusses ways of making compensation less risky.
More on the administration’s new toxic assets plan when I’ve begun to process it, which I unsuccesfully tried to do this weekend. Brad DeLong has a reasonably pro-Geithner plan FAQ, unusual among left-leaning econ blogs; Krugman hates it.