US Bonus Payment Tax Legislation Introduced to Senate

February 5, 2010 Taxation in USA

Senator Jim Webb (D-VA)Two Democratic Senators have introduced a bill to the US Senate which seeks to impose a 50 percent tax on bonus payments exceeding the American President’s salary.

On February 4th Barbra Boxer, Senator of California, and Jim Webb, Senator of Virginia, introduced a bill to the Senate which, if passed, will see taxes being levied on bonuses in excess of USD400 000. The tax will apply to bonuses paid by any organization which received more than USD5 billion from the US Government Troubled Asset Relief Fund (TARP) in 2009. Currently the bill is intendeds to only tax bonus payments made in 2009. The Senators have stated that the legislation could increase Treasury revenues by an approximated USD10 billion.

The legislation introduction follows in the wake of several TARP supported firms announcing a raft of large employee bonus payments. On February 3rd the insurance firm AIG stated that it will pay nearly USD100 million in bonuses to its employees. The Bank of America has also recently announced their intention to distribute over USD4 million in bonuses across its investment banking division. Citigroup, Goldman Sachs, Fannie Mae, Freddie Mac, General Motors and Goldman Sachs are also liable to be subjected to the tax if they choose to make large bonus payments.

Attempts have already been made to directly tax financial sector compensation. In 2009 the US House of Representatives passed a bill to levy a 90 percent tax rate on bonus payment made by AIG, though it did not pass through the Senate. Jim Webb seems optimistic that this bill will be more successful. Explaining his reasoning in a statement, the Senator said “…this is a more refined reproach than what people have tried to do in the past.” Barbra Boxer, expressing her feeling towards the bill described it as being “pretty narrow,” though continuing, she said “It’s symbolic, but it’s also real.”

Photo by marcn