In the late 1960s, there was a well-publicized furor over corporations and individuals with very high incomes who, through combinations of legal tax-avoidance activities, wound up not paying income taxes. So Congress responded with the Alternative Minimum Tax (AMT), which now hits millions of individuals and can’t easily be adjusted because it brings in too much revenue.
I’m now hearing stories about employees of Wells Fargo (which took TARP money not by choice but by force) who make $250K (which in my part of the country barely qualifies as middle-class) in total household income. These people will see their year-end bonuses taken away, if the bonus-clawback bill passed by a large bipartisan majority in the House becomes law. We’re not talking about a few hundred traders and executives at AIG anymore.
So, intentionally or not, has the House just created an income cap at $250K that eventually will get spread far and wide throughout the economy? After all, it’s obviously unfair to apply a salary cap only to people who just happen to work for a company that was forced to take TARP money against its will. So the only response would be to abrogate the salary cap altogether (making Congress look even stupider than they look now), or to spread it to many more companies.
Will the Senate be smart enough to see this for what it is when it’s their turn to vote on it?