Tax Lawyer's Blog

Britain and France seem to have gone a tad giddy with the populist idea of taxing the bonuses of bank executives.

Here’s the Huffington Post:

British bankers are going bonkers after the UK government announced that it wouldn’t stand idly by as they showered themselves with obscene bonuses made possible by last year’s massive infusion of government money.

Alistair Darling, the U.K.’s Chancellor of the Exchequer — sort of like a Treasury Secretary, but with more pluck — announced today that he will impose an immediate, one-time 50-percent tax on bonuses of more than 25,000 pounds (about $40,800). That’s on top of regular income taxes.

The New York Times calls it “the most direct attack on bonuses anywhere in the world.”

And the Wall Street Journal:

France will tax bankers’ bonuses in 2010, following a planned levy in the U.K., two French government officials said Friday.

French President Nicolas Sarkozy and U.K. Prime Minister Gordon Brown on Thursday published an article in The Wall Street Journal, calling a one-time tax on bankers’ bonuses a priority.

“Among these proposals, we agree that a one-off tax in relation to bonuses should be considered a priority, due to the fact that bonuses for 2009 have arisen partly because of government support for the banking system,” Sarkozy and Brown wrote.

The French government officials didn’t provide details about the rate of tax or any thresholds the government will apply to bankers’ bonuses. They said they expect the U.K. and French taxes will encourage other countries to follow suit.

But, according to Bloomberg.com, the Germans aren’t following suit:

Deutsche Bank AG Chief Executive Officer Josef Ackermann said Germany has a “comparative advantage” over other financial hubs because it doesn’t plan to tax bonuses like Britain and France.

“To strengthen the financial hub of Germany I think is a very wise move,” Ackermann said in an interview in Berlin late yesterday.

Ackermann and German Finance Minister Wolfgang Schaeuble said two days ago that German financial institutions including Deutsche Bank, Commerzbank AG and Allianz SE, agreed to uphold the Group of 20’s so-called self-discipline accord, rather than resort to a new tax.

The $64,000 question is will President Obama follow the lead of Britain and France and propose a bonus tax on U.S. executives? Despite Mr. Obama’s seeming fondness for all things Anglo-Franco, it doesn’t look that way says Bloomberg’s Ian Katz:

U.S. lawmakers already wary of expanding the government’s role in running financial companies probably will avoid matching the U.K.’s tax on banker bonuses.

“We don’t think it is at all likely that Treasury-IRS would impose a 50 percent tax on banker bonuses,” said David Schmidt, a senior consultant for New York-based compensation firm James F. Reda & Associates. “This pay cut would likely cause an exodus of talent.”

It appears that the Wall Street lobby is strong enough to quash the bonus tax, but the federal government needs money more than Tiger Woods needs blonde bimbos so it’s a lock that politicians will entertain any measure that promises to increase revenues without exacting a political price. That almost always means taking money from the haves.

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