The big news of the day, by our lights, comes from across the pond, where British regulators continue to outclass their American counterparts by actually bringing some pain to the bankers, rather than quivering in fear of upsetting them.
The UK government, led by Chancellor of the Exchequer Alistair Darling, will slap a 50 percent windfall tax on any banker bonus over £25,000 ($41,000) this year only. But the bank will pay it, not the bonus recipient. That may seem beside the point at first glance, but it’s actually good policy. The government wants the banks to keep that excess compensation to beef up their capital reserves. If they don’t spend it on outlandish bonuses, they won’t get windfall-taxed, and we’ll be less likely to have to bail these suckers out down the road.
“There are some banks who still believe their priority is to pay substantial bonuses to some already high-paid staff,” Darling said. “Their priority should be to rebuild their financial strength and to increase their lending.”
It’s the kind of bold move that makes the Obama administration wet its pants in fear. It kills several birds with one throw: raising much-needed tax revenue, incentivizing banks to use their government-provided profits to build up capital rather than blow it for compensation, and—best of all for a politician—making voters happy. Watch the government’s polls over the next few weeks. The FT itself says in its lede that it’s “a move that will inflame bankers but is likely to be welcomed by the general public.
Will it happen here: Never.
Look, there’s no doubt that banks are gorging on profits provided by government policies, including the lending of free money and the buying or backstopping of bad assets created by the banks themselves. The bankers made gobs of money in the process of creating the crisis and now they’re making gobs of money off the government effort to clean up the crisis (“The British government has paid out £1 trillion in support of its hobbled banking sector, a sum that underscores the financial sector’s large contribution to the overall economy,” writes the NYT, which is excellent to note that no less a conservative than Margaret Thatcher imposed a similar windfall tax on bankers in 1981). That’s evidence on its face of a deeply captured system. Heads they win; tails they win. Everybody knows this is intolerable, but the Americans aren’t going to do much of anything about it.
Why is that? Would it be possible to get a serious exploration of the policy differences between the UK and the US, what’s causing them and how they’re likely to play out in their respective industries? The UK is grabbing the role of global leader in dealing with the fallout from the crisis. Why?
The US is more reflexively antitax (one of the reasons Mr. Darling isn’t setting policy here, too, right now), but bankers have lower poll ratings than journalists right now.
There are unintended consequences with everything, of course, but the fear of those leaves you embracing the same old, same old. Felix Salmon handles the banks’ spin that this will cause an exit from the City of London to overseas somewhere :
But of course this is the genius of a one-off, nationwide supertax: while any individual banker might be able to move overseas, they can’t all do that en masse. And in any case moving overseas doesn’t alter the tax status of this year’s bonus, while next year’s bonus will go back to normal taxation levels — most probably under a more plutocrat-friendly Conservative government, to boot.
This windfall tax is a good peg for an exploration of the evolving American and British responses to the crisis.
Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at email@example.com. Follow him on Twitter at @ryanchittum.