We previously discussed the reaction to GS bonus — I thought it was much ado about nothing, you thought it was an outrage.

Well, it looks like the outrage camp is catching the attention of both the media and the politicos. Even the usually staid, anti-tax WSJ is discussing a “windfall tax” favorably:

“A windfall tax is blunt, arbitrary and something supporters of free markets usually instinctively avoid. Even so, following news that Goldman Sachs Group has already set aside a $16.7 billion bonus pool for 2009, the case for windfall taxes on banks that pay giant bonuses is becoming unanswerable.

This year’s bank profits are windfalls in the purest sense. They aren’t the due rewards for exceptional skill but gifts from taxpayers. Many banks are earning huge, risk-free profits borrowing from central banks at ultralow interest rates and lending back to governments at much-higher rates. If this giant, hidden subsidy was being used to support new lending, fair enough. Instead, it looks destined for bankers’ pockets. (emphasis added)

As much as so many people have recoiled over the size of the bonuses, there is one group that is thrilled with the big NY firms as they dole out $26 billion in bonus checks: State and city governments, and their friendly neighborhood tax collectors:

“Before the financial meltdown slammed bank earnings and the Standard & Poor’s 500 Index of U.S. stocks dropped 38 percent last year, Wall Street’s compensation and corporate profits provided 20 percent of New York state tax revenue and 9 percent of the city’s taxes. New York banks lost $42.6 billion in 2008 and shed 30,000 jobs, according to the city’s Office of Management and Budget . . .

Bonuses in 2008 fell 44 percent from the prior year, to $18.4 billion, said New York state Comptroller Thomas DiNapoli. The reduction cost the state $1 billion in personal income tax revenue and New York City $275 million, he said. State personal income tax collections in the current fiscal year’s first six months declined $4.4 billion, or 21.6 percent, from the same period a year earlier, DiNapoli’s September cash report said.”

One must think local retailers, Co-op sellers and Ferrari dealers must similarly be feeling a small sense of relief. A silver lining, to say the least . . .

>

Previously:
Much Ado About Nothing $23B: Goldman Sachs Bonus (October 14th, 2009)

http://www.ritholtz.com/blog/2009/10/much-ado-about-nothing-23b-goldman-sachs-bonus/

Looking at Wall Street Pay (August 1st, 2009)

http://www.ritholtz.com/blog/2009/08/looking-at-wall-street-pay/

What’s Wrong With Billionaire Fund Managers? (April 16th, 2008)

http://www.ritholtz.com/blog/2008/04/whats-wrong-with-billionaire-fund-managers/

Sources:
Windfalls Show That Bonus Tax Makes Sense
Simon Nixon
WSJ, October 20, 2009

http://online.wsj.com/article/SB125598361150394821.html

Wall Street 40% Bonus Rise Feeds Spending on $43 Steak, Co-ops
Martin Z. Braun
Bloomberg, October 20, 2009

http://www.bloomberg.com/apps/news?pid=20601109&sid=a25cbLmExCXs

Category: Bailouts, Taxes and Policy

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

46 Responses to “Here Comes the Windfall Profit Tax !”

  1. VennData says:

    Ringo Starr said it best:

    We would be so happy you and me
    No one there to tell us what to do
    I’d like to be under the sea
    In an octopus’ garden with you.

    … seems the Vampire Squid needs someone there, to tell ‘em what to do.

  2. Bruce in Tn says:

    Yesterday, my wife was in Kroger and was behind a woman getting checked out. She noticed this gal had a stack of coupons. Her bill was 141 dollars, and after the coupons, she paid 17 dollars! Honestly.

    This is a tad OT, I know, but Mish and others have been talking about coupon savings lately, and my wife saw it in person yesterday. And she got mucho coupons from the grocery immediately after paying.

    B in T.

  3. call me ahab says:

    well . . . when the income was derived from taxpayer assistance to keep the companies afloat- and- the companies would be BK otherwise- and the companies benefit because it cost them ZERO to borrow- thanks to the Fed-

    why shouldn’t they tax the shit out of it?

    you are quite the elitist BR

    ~~~

    BR: How on earth is discussing this elitist?

  4. elsebo says:

    I really miss the Leftback/Karen guy.
    What happened to him?

    Please pay GS bonuses in GS stocks, not deliverable before 2014.

  5. Greg0658 says:

    open box .. ignore .. ya right (-:
    the brain needs the body .. the body needs a brain
    “accident that occurred on 26 April 1986 at the Chernobyl” .. wrong accident (accident ?) TBTFail/Fight Sept 2008

    getting serious .. I’m for more balance in reaping benefits from the collective .. so bring on the Windfall Tax RobinHood

  6. torrie-amos says:

    no problem here, let’s make it something substantial, say 90%, otherwise if it’s puny, they will rape someone somewhere else, ben borrows 35k per americzan, 7 months later GS pays 350k per bonus, yes, very fair, who cares about justice for all when GS can pursue it’s happiness

  7. Greg0658 says:

    faxcash .. coupons knock down $141 to $17 .. corporate stocks & bonds .. bankruptcy clauses
    TBTPolice .. we are in a mess

    http://en.wikipedia.org/wiki/Chernobyl_disaster
    “Eventually the land could be utilized for some sort of industrial purpose that would involve concrete sites,” Randall Bell continues. “But estimates range from 60 – 200 years before this would be allowed. Farming or any other type of agricultural industry would be dangerous and completely inappropriate for at least 200 years. It will be at least two centuries before there is any chance the situation can change within the 1.5-mile Exclusion Zone. As for the #4 reactor where the meltdown occurred, we estimate it will be 20,000 years before the real estate will be fully safe.”
    Randall Bell’s claims are disputed.
    “Wildlife has returned despite radiation levels that is presently 10 to 100 times higher than normal background – according to a 2005 U.N. report – though they were significantly higher soon after the accident the levels have fallen due to radioactive decay.”
    “Birds even nest inside the cracked concrete sarcophagus shielding in the shattered remains of reactor number 4″

    we will survive .. some better than others …. now call in the toxic cleanup crew

  8. Bruce,

    looks like you received a, first-hand, primer in the value of Private Scrip. e- versions soon to become more popular, as well..
    ~~
    while I’m in league with this: “well . . . when the income was derived from taxpayer assistance to keep the companies afloat- and- the companies would be BK otherwise- and the companies benefit because it cost them ZERO to borrow- thanks to the FedRes-” general idea..

    these ‘Windfall’ Taxes smack of retroactive legislation, at the minimum.
    the, easily, wrong solution, to the situation, that, only, further enhances the State’s, growing, Power over the Economy.
    in a, more, common vernacular: “That’s no way to run a Whorehouse.”
    http://www.thefreedictionary.com/vernacular
    Worst, these ‘bonuses’ only serve as a Major-League distraction from, much, more important issues.

    maybe, something like this: Guaranteed Mortgage Lending Goes on
    “So you thought easy-money mortgages with little or no down payment for people with bad credit was a thing of the past? Think again. You can get just such a loan today — and it’s guaranteed by the federal government. Loans insured by the Federal Housing Administration (FHA) have become ‘the new subprime,’ and these loans are exposing taxpayers to the same kinds of soaring default rates and losses that brought down Fannie Mae and Freddie Mac as well as destroyed many banks and the private market for mortgage loans.” (Washington Times, Monday)

    Nothing has changed.
    http://fee.org/

  9. jeff in indy says:

    when the call from Hank came and he said, “we’re from the government and we’re here to help.” he wasn’t kidding…

  10. Marcus Aurelius says:

    The backlash against bonuses is because that’s where the money is diverted from pseudo-public holdings and converted to private ownership — it’s how the money is laundered, and how the foot soldiers are paid. The beneficiary of a bonus adds one more level of complexity/separation between the commission of a crime (fraud, conspiracy to commit fraud, theft by deception) and its prosecution (whether crimes were committed or not is open to debate, but I doubt it would take more than a cursory investigation of the banks (in the broadest sense) to uncover multiple felonies).

    There should be no reward for anyone involved in this fleecing of the American public. The idea of taxing ill-gotten revenue — as opposed to sending people to prison — is repugnant.

  11. Thank goodness! At least now that the government is going to get the money we know it will be squandered. There was only an outside chance before ;)

  12. bsneath says:

    This would be good. It is a case of relieving the symptoms – taking an aspirin to reduce the fever. Much work needs to be done though to cure the patient. BR’s list of 6 fixes posted yesterday is the cure.

    1) No major changes for the ratings agencies! The ratings agencies are not the only bad actors, but they are a BUT FOR – but for the rating agencies putting a triple A on junk paper, many many funds could not have purchased them, the number of mortgages securitized would have been much less, the insatiable demand on Wall Street for mortgage paper would have also been much lower.

    2) Turn Derivatives into Ordinary Financial Products: Force derivatives to be traded like option/stocks, etc. (including custom one off derivatives) Trade them only on Exchanges, full disclosure of counter-parties, transparency and disclosure of open interest, trades, etc. REQUIRE RESERVES LIKE ANY OTHER INSURANCE PRODUCT.

    3) If they are too big to fail, make them smaller.” Have real competition in the banking sector. Limit the size for the behemoths to 5% or even 2% of total US deposits. Break up the biggest banks (JPM, Citi, Bank of America)

    4) The Federal Reserve, Despite its Role in Causing the Crisis, Gets MORE Authority: Better Solution: Have the Fed set monetary policy. They should provide advice to someone else — like the FDIC — who hasn’t shown gross incompetence.

    5) Require leverage to be dialed back to its pre-2004 levels. Better Solution: 12-to-1 should be enough leverage for anyone.

    6) Restore Glass Steagall: Time to (once again) separate the more speculative investment banks from the insured depository banks.

  13. DeDude says:

    It would be much better if Benancke stopped handing these banksters money at 0% interest, just so they can make profit from bying treasuries, or hurting real people and the real economy by speculating in commodities. If Benancke needs to prop up treasuries he can buy them directly (no need to hand the banksters a fat bonus check for being intermediaries). Anybody getting free money from the central bank should be obliged to lend that money out to consumers or businesses. If Wall Street make money by activities that help the economy their profits may be well earned; if Wall Street earn money by raping Main Street a tax isn’t harsh enough – put them in jail.

  14. DeDude says:

    “easily, wrong solution, to the situation, that, only, further enhances the State’s, growing, Power”

    Yeah what a disaster if “we the people” took away the power from “them the millionaires” and their free market toys. Can’t have all that democracy in action. It’s a constitutional right for the few priviledged to suck dry the masses. No big “we the people” gobinment should interfere with that ;-)

  15. Mannwich says:

    @DeDude: Why not just lend money directly to the American people. Cut out the corrupt middle man. Then of course we’d have to trust the corrupt government to do the right thing. Choose your poison, I guess.

  16. KidDynamite says:

    it’s flat out insane that people are now talking about a windfall profit tax on profits derived from taxpayer money support that shouldn’t exist: hey goofballs – here’s an easier solution: END THE TAXPAYER SUPPORT (TLGP, PPIP, TALF, etc) (and make sure there is no more future taxpayer support)… then you tread the cause as well as the symptom.

  17. DeDude says:

    Mannwich; We people have the government we deserve because we elect it. If it is corrupt or incompetent it is because “we the people” have failed to take charge and correct it. I am all for the idea that Benancke purchase treasuries and Fannie/Freddie/FHA bonds to the full extend needed to keep the economy going. Why should we pay a “Wall Street tax” to those bastards just so that some idiots wont start screaming about soci@lism, as if the world was coming to an end if “we the people” refuse to pay those bastards their million dollar bonuses. Same thing with health insurance, why are we paying these absurd profits to Wall Street, just so these paranoid clowns won’t get even more paranoid.

  18. Mannwich says:

    @DeDude: I agree with that to an extent, but as long as corporate lobbyists can influence everything and everyone under the current system, it matters not who we elect. The newbies quickly find they have to play ball or else. That’s the bottom line. Our culture and system are both rotten to the core.

  19. Mannwich says:

    @KD: Totally agree. It’s insane but totally IN LINE with what’s going on, so after a while it seems “normal”. Welcome to the new “normal”.

  20. call me ahab says:

    kid says-

    “it’s flat out insane that people are now talking about a windfall profit tax on profits derived from taxpayer money support that shouldn’t exist: hey goofballs – here’s an easier solution: END THE TAXPAYER SUPPORT”

    no doubt- BUT- the horse is already out of the barn w/ the current profits/bonuses- clawback is necessary- that support should have not been extended- agreed- and should cease- agreed- but for now- let’s tax the taxpayer assisted profits

  21. bergsten says:

    Does anyone actually believe that the group that made that much money in this economy doesn’t have the smarts to figure a way around any windfall tax?

  22. Mannwich says:

    @bergsten: They don’t if it’s taken right out of the paycheck. There you go. Problem solved.

  23. bergsten says:

    @manny: OK, so the compensation is paid in some other way…

  24. Mannwich says:

    @bergsten: You mean with hookers & blow? They could just cut out the middle-man.

  25. bergsten says:

    @manny: See? NOW you’re thinking like a GS’er!

  26. DeDude says:

    Mannwich; the corporate lobbyists only have a lock on influence as long as “we the people” allow that. If we are idiotic enough to let stupid social issues like abortion be more important than campaign reform when we elect our representatives, then “they the millionaires” can run the game. If we are so stupid we cannot se ANY difference between a democrat and a republican, and vote for the one that is more likely to not raise our taxes (and leave the bill to our children) – then it is US that abandoned power and left it for “them the millionaires” to take.

  27. scharfy says:

    This is a big political game of CYA by these clown politicians. Um, you guys voted to bail out those banksters AGAINST THE WILL OF PEOPLE, because the bill was loaded with pork and they fund your campaigns, now you wanna sound off about taxing them. How about just doing the right thing. Citi, B of A, et al would be nice memories by now. I doubt the world as we know it would have come to an end without them. This is at best the wrong application of the right idea in response to the biggest criminal fraud ever perpetrated against the American people. Screw you congress. Really. Most of you guys ought to be ashamed to call yourselves Americans.

  28. Mannwich says:

    @DeDude: Really? What would you have the populace do to prevent what is considered a “Constitutional right” by many in this country? Anything short of violence in the streets isn’t going to change anything in this country.

  29. donna says:

    I don’t think BR is eleitist — I think he does not see the day to day pain so many of us do. Especially here in SoCal with current 12+ percent unemployment. TO see GS getting huge bonuses is absolutely infuriating to manyt people, especially when many have been out of work for literally years now.

    This money should be out there doing something productive, and Wall Street has entirely forgotten that this is their purpose, not becoming fat cats at the expense of the rest of the economy.

  30. [...] blunt tool, a windfall profits tax, is being wielded against bonus-paying banks.  (Big Picture, [...]

  31. David Yaseen says:

    “One must think local retailers, Co-op sellers and Ferrari dealers must similarly be feeling a small sense of relief. A silver lining, to say the least . . .”

    If Goldman and JPM hadn’t taken literally every one else’s nickels trading, those nickels would still be in everyone’s pockets, and unemployment and insomnia would be a few ticks lower and consumption a few ticks higher. The bonus babies and their Ferraris may be super-visible, but the rest of us shmucks pay taxes and buy cars, too. Or, we used to, anyway.

    $10 billion would cover jobs for 200,000 people at $50,000/year, less counting benefits. Either way, having the money so deployed would be at least an order of magnitude better for the overall economy than having it given to 10,000 employees who already have everything they need. Oh, and as a bonus, those 200,000 people get to keep their dignity.

  32. dss says:

    But, hey, extending unemployment benefits must be debated, agonized over, those receiving the benefits must be demonized as lazy socialist leeches, living large off the dole.

    But taxing the bonuses, now that would be penalizing the captains of industry who deserve every penny because they worked so hard, and contributed so much to society. How unfair!

  33. flipspiceland says:

    The real problem here is that no one that no vigilantes exist to take care of this once and for all.

    That people can sit around and have relatively civilized debate at being raped, while the perps figure out how much they need to jackup their bonuses to account for a heavy tax, thereby exacerbating the bonus payouts, is a travesty.

    There needs to be graphic violence to put an end to this debauchery.

  34. Moss says:

    Unintended consequences should go both ways. Tax them, their kin, their next to kin and any other tentacle. They would all be BK, every single one of them.

  35. TDL says:

    There is a simple solution to this situation that does not require a silly and arbitrary law like a windfall profit tax. Force these firms into bankruptcy and begin clawing back illegitimate bonuses. KISS typically works best.

    Regards,
    TDL

  36. DeDude says:

    Mannwich; what I want the populace to do is to substitute abortion with public financing of elections, if they absolutely have to choose a single issue for their votes. If the people demanded public funding of elections and would rather vote for a pedophile than a candidate opting out of it, then “we the people” could greatly decrease the influence of “we the millionaires” on our government. As it is now, the idiots on the right are all hugely concerned about any politician that want to increase taxes or spending. As a result our government has been sold to Wall Street for a few million in campaign contribution to each senator and representative. Fox news has sold the idea that tax and spend is the essential issue to the idiots listening to them, when the real issue always is who the man behind the curtain is. So the taxpayers lose a trillion because they refuse to outbid Wall Street and use a billion to buy back their government. Talk about penny wise and pound foolish.

  37. TDL says:

    I’d also like to say that the knee jerk reaction to these bonuses is silly. This is how the street has been doing business for decades. These banks are the distributors of “new” money (i.e. the fiat $ that are dumped into the economy by the Fed.) These banks get to front run everything; goods, services, assets (physical as well financial.) There are plenty of honest players on the Street who are being compensated for reasonable risks, honest selling, & prudent management of assets. These people will be harmed along with the bad actors who lie, cheat, and steal.

    Also, once a law (like this proposed tax) is put in place only time stands in the way before it is expanded. First it will be imposed on the TBTF institutions, then it will creep to the finance industry as whole, then it will expand to other sectors of the economy. This is the nature of government, create a precedent and then use that precedent as a rationale to expand your power. We already have laws that deal w/ fraud & insolvent institutions that would adequately deal with this corrupt breed of bankers; let’s not advocate for more laws & more power to the political center.

    Regards,
    TDL

  38. TDL says:

    DeDude,
    Check your facts. The majority of Democrats have also been supporting all these bailouts. Also, Unions are massive contributors and have preferential treatment in the legal & political system. I would hardly call hard working carpenters millionaires (and if they are, good for them.) So it’s hardly just the millionaires who control the government. There are a lot more players in this game then just the wealthy.

    Regards,
    TDL

  39. DeDude says:

    TI am not suggesting that the current crop of democrats are squeky clean – just that they are less dirty and less subservient to the millionaires than the republicans. Remember who it was that got the banksters that delay in the new credit card rules (a delay now being used to kill regular people squeezed by the economic mess those same banksters created).

    It is just fine with me if reforms take away influence from all the rich (carpenters, unions, investment bankers, business owners, etc, etc,). In a real democracy influence should be per voter not per million dollar in wealth.

  40. impermanence says:

    Barry writes:
    “One must think local retailers, Co-op sellers and Ferrari dealers must similarly be feeling a small sense of relief. A silver lining, to say the least . . .”

    What a relief, I was really concerned about the Ferrari dealers in my town too.

  41. ZackAttack says:

    So we sat idly by while Congress acted in contravention of constituency by passing the TARP, and now we want to clawback a tiny percent of that amount post-facto?

    If we hadn’t been held hostage at CDS-point by The 19 Financial Terrorists, we wouldn’t need to have this discussion at all.

    Should have let those POSs burn to the ground.

  42. dagmountain says:

    Great story Barry! Thanks for reporting on the positive externalities of financial terrorism. Max Kiaser would be so proud of you.

  43. dagmountain says:

    Here is something that the readers of this blog might want to hear about-

    In the meantime, in elite Washington circles people are busy making plans for a national sales tax so that the government can limit the fiscal damage caused by the bankers’ recession. A sales tax is of course very regressive, since low- and moderate-income people typically spend the vast majority of their income, while our banker friends will more likely to be able to save some of their income or spend it in other countries where they will not be paying this new sales tax. -Dean Baker

    http://www.michaelmoore.com/words/mike-friends-blog/mike-friends-blog-take-america-back-banks

  44. philipat says:

    The ony problem I have is that these are PUBLIC Companies and the bonuses paid are shortchanging what should be shareholders income. Trade privately, problem gone, pay whatever bonuses you can earn. Of course, I’m not sure that savvy private capital would tolerate a bonus payout of 50% of revenues?

  45. Greg0658 says:

    dagmountain at 3:54pm “busy making plans for a national sales tax”
    as the saying goes .. the devil is in the details ..
    if all sales transactions including trades in commodities and corporate stocks were taxed at some rate .. this traders world for profit would be curtailed and would restore value to actually making a widget for a living instead of this cash pile pushers world that has taken over ..
    on your point of the ramifications of sales taxes on the products that all commonfolk and elites alike purchase .. I agree that the pile of cash for the commonman is less full of spare cash for taxes .. therefor it may sound unfair – but a long tail graduated taxation system should be designed .. and its not unfair .. as the commonman builds wealth thru the pyramid schemes and becomes an elite .. more taxes are required to keep the base sound and a logical elite should know and appreciate this .. so long as the graduated scale is upwardly fair to his/her level of players and beyond
    ^
    -
    v