It’s been a while since I talked about my beloved banking industry.  But we’re back in the news again with a proposed tax from Senator Webb of Virginia on bonuses to TARP banks.

Do you remember like a couple of years ago there was this huge financial crisis?  The Treasury Secretary (Hank Paulson) and Fed Chair (Bernanke) orchestrated this $700 billion bailout program.  They were going to use the money to buy the bad assets off of banks, freeing up capital to get the markets moving again.  Instead they used it to just buy a bunch of stock in the companies, but no matter.

You, me, and of course the media were very much focused on how much money we might lose in this deal.  As it turns out, we actually made a few bucks.  The banks had to pay a little interest on the money we loaned them.  But, billions of dollars were paid out in bonuses, causing a ruckus among the media and DC puppets alike.  Personally, I didn’t care, and no I did not receive a TARP bonus.

But the media and DC were really convinced that this was a problem.  It was a PR nightmare to receive billions of dollars to keep your company alive, only to pay some of those billions to managers that obviously didn’t do their jobs right.

Webb’s proposed tax aims to get some of that money back.  For every dollar in 2009 bonus received over $400,000, the bonus is taxed at 50%.  So if you got a bonus of $600,000, you’d be responsible for a new tax of 50% on that $200,000 extra.  This tax revenue will be used to pay down the deficit.  Yes, that’s what I said, he actually wants to use this to pay down the deficit.  He might as well give up because even if Washington passes this bill, that money is going somewhere else.

I could love or hate this idea.  On the surface it sounds alright.  We essentially gave low interest loans to high risk borrowers, we should be compensated for taking on that risk.  Despite being a politician, I watched Webb get raped by Maria Bartiromo on CNBC yesterday.  He’s not good with words, but he meant to tell the people this is why he wants the tax.

After much internal debate, and a trip to the grocery store for Malt-o-Meal cocoa pebbles, I decided I love this idea.  Go ahead and tax the TARP bonuses.  I’m no socialist and I’m not interested in redistributing wealth, but Webb is trying to put an end to the whole Wall Street bonus crap.  By introducing this bill we get one of two outcomes.  Either we do this tax (which is a token tax if anything), or we don’t.  Either way, the conversation about Wall Street bonuses will be over for the next half-decade.

Webb’s cronies estimate that this tax could bring in as much as $10 billion.  I’d be surprised if it even brought in $1 billion towards paying down the deficit.  Which leads me to assume that Webb is doing this for the publicity.  It gives him good talking points when he goes back to his constituency (which he barely won over in the last election).

Whether for personal gain or simply because he wants to end the debate about TARP bonuses, I applaud Senator Webb for this attempt.  Perhaps he’ll start a trend with paying down the deficit a smidgen.  But I wouldn’t hold me breath.

By The Weakonomist

The Weakonomist is the founder of Weakonomics. Clicking the picture of the puppy will tell you more about him. If you like what you're reading consider subscribing to the blog, following him on Twitter, and checking out the related posts below. Please consider a donation if you really enjoy Weakonomics. Also keep in mind that nothing I say can be construed as financial advice.

categories: banking, business, government