Taxing Banks

| Wed Dec. 9, 2009 7:55 PM EST

A couple of days ago I wrote about Britain's proposed super-tax on big bank bonuses.  Today, via , I see that it would work a little differently than I thought:

Banks will be charged a 50 percent tax on 2009 bonuses of more than £25,000, or $40,800. It will be imposed on the pool of bonuses paid by a bank, rather than individual payments, and it will be paid by the bank — not by the recipient of the bonus. It will take effect immediately and will affect banks’ 2009 profits.

For what it's worth, I like this approach better than an individual tax because it gets more directly at what the immediate outrage is.  Basically, the banking system was about to go under last year as a result of its own folly and was rescued by the government.  With a couple of exceptions, however, instead of outright nationalizing the weakest banks, the rescue plans in both Britain and the U.S. were aimed at boosting bank profits and letting them earn their way back to solvency.  You can argue about whether this was the right approach or not, but it's the approach we took.  Given that, it makes sense to give banks a strong incentive to retain their outsize earnings and use them to strengthen their balance sheets instead of paying out huge bonuses to their traders and executives.

Of course, this also puts paid to the whole idea that the tax might be a human rights violation.  Unless you want to argue that a bank has human rights.  Do you?

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