I’m real tired of the political posturing and rhetoric we are all subjected to day after day about bonuses being paid at Wall Street firms. The recent outrage over retention bonuses at AIG was the last straw. The House just passed a bill proposed by Charles Rangel that would tax at 90% those bonuses paid by firms that received over $5bn in TARP money. The bonus tax would only apply to those who received over $250,000 in total compensation during the 2009 calendar year. All of the recent debate makes for good theater and politics but does nothing to address the core issue that we still don’t know what the banks have done with the majority of the TARP money.

Most bonuses for 2008 were paid after 12/31/08, which would make them TAXABLE AT 90% under the house plan, making it in effect a retroactive tax.

I think what just happened was completely done out of fear and anger and might be the most ridiculous thing to come out of Washington in recent memory. The people in Washington are fearing for their political lives as their offices field angry calls from constituents who view a “bonus” as something that should be paid to someone as a reward, not to someone who has run their firm into the ground. If we changed the compensation on Wall St so that people were paid significantly higher base salaries, would that make things ok?

Wall St for a very long time has not had a bonus structure that is typical by the standards held by many Americans. On Wall St, an individuals salary is only a small token of total compensation, with the majority of the reward coming in the form of a bonus.

Just think about this, lets say you were making $1 million a year in total compensation for the last 5 years, and now someone comes along and says you will only make $100,000 this year because you will not be getting a bonus. What would you do? You’d probably quit if you were financially secure. That is exactly what these senior executives will do at the exact time we need them to help to return their firms to profitability and help steer us out of this economic mess. These firms don’t run themselves and can’t afford to lose its best people.

This bill still has a long way to go, and the Senate is considering a version that would tax bonuses at 70% with half to be borne by the company and the other half by the individual. The government is trying to navigate down a very slippery slope by attempting to set compensation for private companies. I just hope Washington comes to its senses and doesn’t cause a massive Wall St “Brain Drain” that makes it impossible get ourselves out of this economic mess.

Sphere: Related Content on the Web