The House of Representatives just passed a bill that taxes bonuses on employees money making over $250,000 of companies that received TARP money. This move will prove to be counter-productive for the following reasons:
- The move will essentially forces firms like Morgan Stanley and J.P. Morgan to pay back the TARP money quickly because most of their significant employees make over $1 million. And, because banks still do not have access to capital, their ability to lend company will be diminished. With less lending, you have less economic activity.
- For firms that are unable to pay back the TARP, the majority of their top talent will move to firms that do not have this tax. $250,000 on Wall Street is barely entry level so talent at almost every level will move quickly. In addition to losing talent, the prestige factor or TARP firms will drop quickly and in businesses like investment banking and trading, prestige is a crucial portion of their business strategy.
- The net result of this bill will be to reduce bank lending and/or permanently ruin companies that the government has already investment billions of dollars. Politicians in Washington have once again shown themselves to be a significant threat to the economy.
Barrack Obama should be a hero and veto this bill.
- John P
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