March 20, 2009 2:00 PM

W.H. Economist: Bonus Tax Could Have Chilling Effect

By
Brian Montopoli
Topics
Washington Unplugged
(CBS)
On CBSNews.com's Web show "Washington Unplugged" today, White House Economic Adviser Austan Goolsbee said he agreed with an argument articulated by host John Dickerson that taxing the bonuses of well-compensated employees at AIG and other firms receiving federal bailout money could have a "chilling effect" on the credit markets.

"…outside AIG, there are other banks here where maybe the situation is not as acute, and there is a worry about a chilling effect on this key thing, which is getting the credit markets moving," Dickerson said.

"Yeah, that's why you don't want to legislate out of anger," Goolsbee said. "You want to figure out what's the best way to do it. I agree with that."



Yesterday, the House passed legislation mandating a 90 percent tax on bonuses given to employees of companies that receive $5 billion or more in government bailout money and have a family income in excess of $250,000. The legislation was passed in response to populist outrage over the AIG bonuses.

But with bonuses accounting for a large chuck of compensation for many on Wall Street, there are concerns that such a tax will incentivize firms not to take bailout money – or even give it back. If they refuse the bailout money because of the tax, they might not have the capital they need to restart lending, which is what the government is trying to get them to do.

As Goolsbee repeatedly noted, the Senate is also taking up legislation on taxing bonuses; he said President Obama is "going to look at whatever bills come out of the two sides of Congress when he evaluates that."

The White House economist also said there is "some chance" of an overreach on the legislation.

Watch the full episode of "Washington Unplugged," which opens with the Goolsbee interview, above.

Add a Comment See all 23 Comments
by lami987 March 22, 2009 10:04 PM EDT
If government really wants to help people pay their troubled morgages why not deal with those people in need directly or through healthy financial institutions.
Never deal with those corrupt failed financial institutions. We must not throw good money at the bad.
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by lami987 March 22, 2009 9:55 PM EDT
It is more chilling to let those top executives do whatever they want to enrich themselves. Regardless of how much money they get they wouldn't be able to bring us out of this financial disaster they have created. If they were that smart we wouldn't be in this mess in the first place. The only persons who would be able to bring us out of this mess are people from outside those financial institutuions such as those who had successfully worked for the treasury in the past and those who are working for universities. Even Eliot Spitzer (ex NY governor) had predicted years ago that many financial institutions are playing russian roulette many illegally. I am glad congress is trying to correct the mistake they made and not let that mistake to continue.
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by smoknmirrors March 22, 2009 12:11 PM EDT
I have no objection to AIG rewarding a particular division of its enterprise with bonuses. After all, this company needs the competence and loyalty of those employees who devised the special financial tools that brought us this economic Chernobyl. What if these experts went elsewhere? Just think of the loss to AIG. I'm just saying that if these incentives are truly necessary, then the parent company should utilize funds from the stockholders in the company, not special monies authorized and provided by the taxpayers to SALVAGE the parent company. Now, if there is some hesitancy about taxing "after the fact," please try to keep in mind that all taxation is after the fact, only withholding is real time. It has been done before, and with lesser beings, e.g. George W. Bush's first tax cut. Frankly, I don't expect either our Congress or our President to do more than shovel smoke.
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by bumpedoff1 March 21, 2009 8:53 PM EDT
If they do this to them what do you think they can and will do
to us.
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by Rock-Hill March 21, 2009 7:56 PM EDT
>>>"But with bonuses accounting for a large chuck of compensation for many on Wall Street, there are concerns that such a tax will incentivize firms not to take bailout money ? or even give it back. If they refuse the bailout money because of the tax, they might not have the capital they need to restart lending, which is what the government is trying to get them to do."


In other words, ?We, the greedy, will destroy everything if we don?t get our money.?

Talk about only being out for yourself. I?m sure we can find ways to point out the problems with their philosophy.
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by homjett March 21, 2009 1:35 PM EDT
If this new Admin would just slow down, an take one thing at a time, put Term Limits on Congress, get rid of those folks on Obama's Financial Board, whose own Company's are tanking because they cannot do the job. My guess why he will not slow down, because he knows that comes 2010, the Congress just might change to Repub control. Those good hard working folks who pay their mortgages, car payments, go to work everyday, do not want a Socialized Govt. They are laughing at us over in the Europe, where once they only hated Pres Bush.
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by oftencensord March 21, 2009 9:47 AM EDT
It is chilling the congress is buying into the media circus surrounding the bailout money, and terrifying the US Government is targeting specific workers of these companies with specific laws and taxes.

How about football-basketball-baseball salaries? ... whose teams are playing in taxpayer subsidized stadiums? shouldn't they be taxed on everything above $250K also?

It is a dangerous door they are trying to open here.
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by clancy49 March 21, 2009 8:10 AM EDT
If the politicians in Washington D.C. had listened to their constituents in the first place, those bailouts would have never happened. I started on these blogs during the bailouts. I was against corporate welfare and so were, my guess, 90% of the bloggers. That is 90% of the constituents telling representatives not to vote for bailouts. We also sent letters and emails to those representatives, who did not listen to us. Nor do they read these blogs because it is all about them, their fundraisers, their life, their retirement, their banks, and their money. Yes they consider our tax dollars to be their money. I say they should be fired, not just the bad business executives. A senator from Florida, not to be named is Democratic and voted for the bailouts. As far as I am concerned he is fired. The Republican who is retiring listened to the constituents and did not vote for the bailouts. He was ripped apart for it. But you see, to him it doesn't matter, he is retiring and can afford to listen to constituents. Listen to the majority of people you idiots and you just make the right decision and not CYA later.
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by vanron100 March 21, 2009 3:05 AM EDT
There's no 'chilling' effect...here's the problem...

Paulson (+ Geithner, Bernanke, etc) designed this 'Ponzi' scheme (TARP). We understand everyone wanting us to buy more stock in order to keep the market up...fix the system...then we'll have 'confidence' to invest.

And that FIX is simple and oblivious, but everyone seems not to be addressing it directly...
- it's 'Corruption-Corruption-Corruption'.
ie. special interest groups, earmarks, lobbyist, elimination of rules and regulations, the financial sector having contributed over $5.2B to political campaigns, same people who got us in this mess are now tying to get us out (humanly impossible...they will, and have instead spent most of the time & money trying to cover-up the industry's underlining behavior).

Corruption is the 'root' problem here...as it is everywhere. Until that gets fixed first...everything else is redundant...we're just pouring $$$ into the abyss! Wall Street has always been Ponzi Street, and the Golden Rule always applies; 'never invest $$$ you can't afford to lose'.

Fix the 'corruption' - then we'll have 'confidence'.
The solution ? 'Transparency-Transparency-Transparency'.
How? Start now Restructuring (nationalize, fix, resell) all these financial institutions - the FDIC does this every day.

...EASY
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by kansas1946 March 20, 2009 10:24 PM EDT
I am a little confused why this would "chill" lending. When firms have their hand out and are receiving huge amounts of money from tax payers, it is because those guys that got bonuses failed. Employees that failed, should be fired, not receiving bonuses. I don't think these firms that are facing bankruptcy are going to turn down the money just because bonues would be taxes. In a bankruptcy, the bonuses would be discharges and no one would get nuttin' anyway. But, maybe I am not as smart at this guy?
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