French Tax Bonuses 50%, Will US Follow?

Posted by: Nanette Byrnes on December 16, 2009

France has followed the UK example and slapped a 50% tax on banker’s bonuses. Could the US be next?

Not likely, experts say. Washington may be making great sport these days of deriding Wall Street’s Fat Cats. But there seems to be little interest in the Capitol in making such a dramatic move as this tax.

Instead, the Securities & Exchange Commission finalized rules today that will require corporate board to dig deeper into corporate pay plans.

Irv Becker, National Practice Leader of the Executive Compensation Practice at consultancy Hay Group, doesn’t think the new policy would have kept us out of the financial crisis by itself, but he says it is nonetheless a positive step.

Today boards focus on the compensation of the top five executives at the company. But under the new provisions, would have to take a deep look at any plan that could have a material impact on a company. Many parts of any financial firm would qualify for examination, Becker says, but other industries would be affected too. A pharmaceutical company’s sales rep pay, for example, could also come under review. “This really expands the scope of the board’s compensation committee,” he says.

Though less dramatic, the SEC’s move could prove more effective in the long run. Without a broader group of countries imposing the bonus tax, Becker says, banks will likely just shift out of those countries that keep a tax in place and move instead to markets like Switzerland and many Asian countries where there is no such issue.

In the US, “the inclination would be to see if the companies police themselves first,” says Derrick Neuhauser, co-leader of BDO Seidman’s Compensation Risk Assessment Task Force, “and if they don’t maybe use a tax, but only as a last resort.”

However unlikely today, it is not unprecedented for the IRS to impose taxes to limit pay abuses. IRS-imposed excise taxes have over the last 15 years help curb outsized golden parachutes for top executives, excessive compensation for non-profit leaders, and tax-free retirement plans high level executives were dipping into long before retirement.

Reader Comments

Asela

December 16, 2009 7:47 PM

The main reason why the US will not impose a 50% tax is the financial industry is signifcantly more powerfull in the US. Lobbying equals curruption and on that scale we must one of the most currupt in the world.

Midwest

December 17, 2009 12:57 AM

Asela has it right. This is about foxes running the hen house and no one is going to stand up to the greediest, most corrupt people on the planet. Namely, the American corporate officers and board of directors, who have realized that they can pilfer the coffers and distribute extraordinary sums of money to themselves and their cronies without a single concern about the law knocking on their door. Shame on these people. Try a 75% tax on their bounty, 50%'s not enough.

bill

December 17, 2009 3:28 AM

Amazing how quick the greedy corporate leaders were to grab government money to fatten their portfolios and how really quick those same corporate executives found the money to pay the government back when the government was going to control their bonuses. Corporate greed makes the worst 3rd world dictator seem almost saintly, especially those on Wall Street. America has become the "Land of Corruption and Greed".

edy

December 17, 2009 9:48 AM

The US government should tax these Fat Cats at least 50%, but it won't because the government protects these companies, since many in the Treasury & the Fed come from these companies.

Why bite the hand that feeds you.

Listen up folks...it will never happen.

Frank A NYC

December 17, 2009 11:30 AM

The reason the US wont do it is more practical than corrupt. If I am a due a large bonus, I would forego my bonus in lieu of stock. I will then exercise my stock at a later date. What has been accomplished? Do we really want the government arbitrarily deciding to tax specific people at the drop of a hat? It may be fine when it is the "other guy" but what happens when it is you?

Frank A NYC

December 17, 2009 11:32 AM

The reason the US wont do it is more practical than corrupt. If I am a due a large bonus, I would forego my bonus in lieu of stock. I will then exercise my stock at a later date. What has been accomplished?

Thomas Huynh

December 19, 2009 10:01 AM

Capping salaries is like eating sugar-free cake to lose weight -- the root problem isn't the sugar but the bad habit of eating cake. The root problem here isn't the pay but the company's poor structure which allows for the disconnect between employee contribution and compensation to happen. Call it corruption or good-ol-boys network but whatever it is, it destroys company value. Investors should play a much larger role in combating these abuses, not the government.

Thomas Huynh, founder
Sonshi.com

Dave Starson

December 31, 2009 4:47 PM

Every tax-paying American should take a look at http://www.TaxWallStreet.com which is a website that is dedicated to getting Congress to impose a windfall super-tax on Wall Street bonuses. TaxWallStreet.com has an open letter to Congress and a link to the write your representative page on the House of Representative's page. If enough Americans start sending letters to Congress then maybe they will hear the voice of reason.

Tanguy

January 4, 2010 9:40 AM

I am from France, just to tell you that in our country there are so many ways to escape taxes...

David

January 8, 2010 10:44 AM

The industries are more powerful than normal people, I don't think the government of US is going to impose these taxes on us!
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January 17, 2010 4:19 AM

Very Informative post. Thanks sharing with this blog.

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Jonasian

February 16, 2010 5:51 PM

This high tax is necessary to those who receives large bonuses and I hope the country can use this taxes money for the greater good.

Jonas
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Dave

February 19, 2010 3:21 PM

This is what America needs to do to stop the outrageous bonuses the financial institutions give. WHY NOT? The little people get hammered with taxes at every turn why not tax the bonuses given by the corporations?

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Golf

March 24, 2010 7:01 PM

Robert

March 27, 2010 9:05 PM

If our government worths their salt they should have taxed executive bonus at 60%, since France has VAT and the US don't...
But - as usual most government are of and for the riches and powerfuls - - - this one ia just a tad better.

Robert

March 27, 2010 9:05 PM

If our government worths their salt they should have taxed executive bonus at 60%, since France has VAT and the US doesn't...
But - as usual most government are of and for the riches and powerfuls - - - this one ia just a tad better.

Robert

March 27, 2010 9:08 PM

If our government worths their salt they should have taxed executive bonus at 60%, since France has VAT and the US doesn't...
But - as usual most governments are of and for the riches and powerfuls - - - this one is just a tad better.

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