Bank executives who received bonuses last year may have to pay a one-time tax if they work at a bank that received TARP bailout funds. A proposal in the senate would place a 50% tax on any compensation over $400,000 at banks that received government assistance.

A Bailout Tax

If it gets through the senate, the proposal, drafted by Senators Barbara Boxer (D-Calif.) and Jim Webb (D-Va.) would require all highly compensated employees at banks that received $5 billion or more in TARP bailout funds to pay tax on any compensation above $400,000. They claim that the tax could raise as much as $10 billion.

The senators believe that it is only fair to make executives taking big bonuses from profits that were in part supported by bailout dollars to pay some of that back to the government. “It’s outrageous that many of these companies are doling out millions of dollars in bonuses while the rest of America feels the pain of their reckless decisions,” Boxer said. Large banks such as Goldman Sachs Bank USA have reported almost 50% increases in their bonuses over from the previous year, giving a total of $16.2 billion in bonuses in 2009.

Tough Proposal to Pass

While the proposal has populist support with voters who are angry with the situation on Wall Street, it seems unlikely that such a bill will get very far in Congress. President Obama and his team have expressed concern over taxing compensation, instead placing fees on large banks liabilities.

The banks are understandably unsupportive, saying that it requires bonuses in order to retain its top talent, who would simply go to another bank if they did not receive large enough bonuses. Therefore, even if they wanted to reduce compensation, the largest financial institutions are in a stand-off, each not wanting to be the first to lower their compensation level. Senators Boxer and Webb believe that it it’s the government’s role to step in and lower levels across the board.

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