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In Wake of Latest Banker Bonus Outrage, Nation Needs an Immediate Federal Policy About-Face, Says IPS
WASHINGTON - January 13 - Analysts from the Institute for Policy Studies today called for a strong, swift, and sustained federal response to the record bonus outlays that Wall Street's top banks will shortly begin announcing.
"These billions in bank bonuses amount to money laundering on the grandest scale ever," says IPS director John Cavanagh. "Hard-earned tax dollars from average Americans have been transformed - via subsidies and sweetheart deals from the Treasury and the Fed - into bonanzas for the same speculators who shoved the economy into crisis in the first place."
The Obama administration is reportedly considering a new tax on bank earnings, but the plan is still undefined and would be unlikely to have a significant effect on executive compensation levels.
"We need to get taxpayers their money back and take real steps to end the pay gluttony that's made our economy a casino where only the already rich can ever win," notes IPS Global Economy Project director Sarah Anderson, who has analyzed executive pay trends for 16 years.
Lawmakers in Congress should work quickly to place on President Obama's desk legislation that would establish:
1. A financial speculation tax. A modest tax on trades of stocks, bonds, options, and derivatives would have little impact on trades that have a positive economic impact but could reduce the volume of unproductive speculation that has been the source of the greatest volatility - and profit-grabbing - in financial markets. Such a tax, notes UK chief financial regulator Lord Adair Turner, would reduce the pool of money available for executive bonuses. A financial transactions tax could also generate significant revenue for U.S. and global public goods.
2. An emergency 50 percent surtax on all individual income over $2 million. In the current economy, all super incomes - not just banker bonuses - represent windfall profits made possible by the sacrifices working Americans have made to stabilize the nation's financial system.
3. A limit on the executive pay that all U.S. corporations and banks can deduct off their taxes. The original bailout legislation limited the deductibility of executive compensation at TARP recipient firms to no more than $500,000. That step needs to be extended throughout the economy, as the Income Equity Act now pending in Congress proposes.
European nations have so far taken tougher action against the banker bonus bonanza than the United States, notes Chuck Collins, the director of the IPS Program on Inequality and the Common Good. But U.S. financial executives would likely find ways to circumvent the various European proposals - most notably a 50 percent tax, payable by banks, on big bonus payouts and required deferrals of as much as 60 percent of bonus outlays for three years.
"The deferrals give banks an incentive to shift dollars from bonus to salary," notes Collins, "and the big banks are 'spreading the pain' of the tax across their operations - and also threatening to tie up the banker bonus tax in the courts."
"If the United States were to impose an emergency 50 percent surtax on all income over $2 million," adds IPS associate fellow Sam Pizzigati, "America's wealthiest would still be paying taxes at a lower overall effective rate than they paid during the Eisenhower years."
Kristi Ceccarossi, Communications Associate, Kristi@ips-dc.org, (617) 983-4094.
Sarah Anderson is the Director of the Global Economy Project at the Institute for Policy Studies and a co-author of 16 IPS annual reports on executive compensation. Contact: email@example.com, 202 234 9382 x 227.
Chuck Collins is a senior scholar at the Institute for Policy Studies where he directs the Program on Inequality and the Common Good. Contact: firstname.lastname@example.org, 617 308 4433.
Sam Pizzigati is an Associate Fellow of the Institute for Policy Studies and author of the online newsletter Too Much. Contact: email@example.com, 301 933 2710.
John Cavanagh is IPS Director. Contact: firstname.lastname@example.org, 202 234 9382 x 224.