Senator Jim Webb Pushes Legislation On Taxpayer Fairness

FYI: Webb to Offer his Amendment to Tax Excessive Corporate Bonuses During Financial Regulation Debate

Senator Jim Webb (D-VA) plans to reintroduce his Taxpayer Fairness Act as an amendment to the financial reform bill, S. 3217.  “During this debate on financial regulation, nothing seems more fair or appropriate than to make the American taxpayers whole after they infused our financial markets with capital in 2008 and saw them to recovery,” said Webb.

Webb’s measure, which he first introduced with Senator Boxer in February and again as an amendment to the tax extenders bill in March, puts a one-time windfall tax on bonuses paid in 2010 to executives of financial institutions that received $5 billion or more of taxpayer support under the TARP (Troubled Assets Relief Program) or the Housing and Economic Recovery Act of 2008.  CBO conservatively estimates that this amendment will raise at least $3.5 billion, revealing the enormous bonuses handed out by the 13 institutions that received the largest bailouts.

“Our political leaders should have the fortitude to require that excessive bonuses from these companies be repaid to the American people,” said Webb. “It is a targeted, sensible approach to ensure that the taxpayers who made possible the success of the biggest financial institutions benefit from that success—not just the executives of those institutions.”

Webb’s amendment, which has the support of Senators Boxer, Durbin, Murray, Lincoln, and Sanders, will place a one-time, 50 percent excise tax on bonuses above $400,000 paid to individuals working for institutions that received at least $5 billion in taxpayer bailouts. Webb does not favor recurring taxes on windfall profits.

Said Webb: “This situation is different than most. The risks were mitigated, if not eliminated. There is no risk or inventiveness to reward. These executives got lucky, to the exact degree that our middle-class taxpayers got the shaft.”

Some of the world’s most conservative financial analysts agree that the approach in this amendment is fair and equitable.  In November 2009, Martin Wolf of the Financial Times wrote:

“Ordinary people can accept that risk takers receive huge rewards.  But such rewards for those who have been rescued by the state and bear substantial responsibility for the crisis are surely intolerable….  Public finances will be devastated for decades: taxes will be higher and public spending lower.  Meanwhile, bankers are about to reap huge rewards.  This damages the legitimacy of the market economy…. ‘Windfall’ support should be matched by windfall taxes.”

Dan Gerstein of Forbes wrote in an article about the Taxpayer Fairness Act on April 15, 2010:

“The logic behind this proposal…is about as black-and-white as these issues come. Taxpayers fronted a handful of bankrupt companies trillions of dollars with almost no strings attached…In return, we deserve a share of the profit from our investment, not just a modest interest payment. Since we assumed all the risk, 50% of the bonus payout seems more than reasonable, especially when you consider it would only apply to wealthier executives. That’s not retribution, as some bank apologists will claim; it’s repayment.”

To read the full text of the Boxer-Webb “Taxpayer Fairness Act,” visit: http://www.scribd.com/doc/26377327/Taxpayer-Fairness-Act

A summary of the legislation follows.

Description of The Taxpayer Fairness Act

  • This legislation imposes a 50 percent excise tax on all bonus payments from major recipients of Federal economic assistance that exceed the President’s annual cash salary of $400,000.
  • For example, out of a one million dollar bonus:

o       $400,000 of the bonus would be exempt from the special fee.

o       $600,000 of the bonus would be subject to a 50 percent fee.

o       the excise tax would thus total $300,000 on a million dollar bonus.

  • The legislation affects all 2009 bonus payments from major recipients of Federal emergency economic assistance.
  • “Major recipients” are defined as companies receiving $5 billion or more from the Troubled Asset Relief Program (TARP), including the two largest housing agencies (Fannie Mae and Freddie Mac).
  • Base salary and sales commissions are not defined as bonuses and thus not affected.
  • However, stock options and grants of stock are included as bonuses.
  • This proposal affects only bonuses given for 2009, and no other year. This is an extraordinary year when the success and in many cases the survival of these companies depended on Federal assistance.
  • The excise tax is imposed on individual recipients of bonuses from these companies, not the company itself.
  • Revenues raised would be returned to the Treasury to be used for deficit reduction.

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