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