Well done, Darling

By Felix Salmon
December 9, 2009
50% supertax on their bonuses this year:

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To nobody’s surprise, bankers are complaining about the UK’s 50% supertax on their bonuses this year:

The government hopes the move will encourage banks to use additional cash to shore up their capital bases, rather than pay high salaries. But banking groups have warned that penalizing high earners in the financial sector will lead to an exodus of talent overseas.

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.

So there won’t be any exodus here. And I’m surprised too at the relatively low level at which the supertax kicks in: £25,000, or about $40,000. Banks in general caused much of the UK’s extremely harsh recession — GDP is going to contract by 4.75% this year — and also are responsible for a large part of the country’s massive budget deficits. They should pay a more in taxes this year than might be indicated by their share of total income.

One-off windfall taxes and supertaxes are dangerous things to play with: you don’t want to make a habit of them. But we’re living in extraordinary times: this is exactly the year to implement them. Good for Alistair Darling.


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> Banks in general caused much of the UK’s extremely harsh recession

Well, sort of. There’s something of a fallacy of composition here, and something else reminiscent of the mistake in saying “the price of imported oil has gone up, therefore we would be better off closing our borders to oil imports”, but that’s not actually the comment I wanted to make here.

I think the strategic equilibrium here for what is likely to be believed to be a bonus tax with a low probability of recurrence in the near future might be for the banks to wink at traders and say, “we’ll use some of the built-up equity to give even bigger bonuses next year”, in which case you do more to empower the banks vis-a-vis the employees than anything. Not that that’s a terrible thing, either, but you’ll probably see some degree of time-shifting, and some degree of lesser regarded employees ultimately taking more of the brunt of this than the employees the banks really want to keep.

Posted by dWj | Report as abusive


And I thought deficits were caused by spending exceeding revenue. Silly me.

Note to Felix — throwing around the word “plutocrat” as you’ve been wont to do lately is reminiscent of the Trotskyites responsible for the “Starve the Banksters” flyers that have taken up residence on telephone poles all over my neighborhood.

Posted by Mega | Report as abusive

Mega (not the Israeli mole, Mega, right?)

By Trotskyite do you mean “Icepick-and-shovel-ready Communist”?

Posted by Uncle_Billy | Report as abusive

Where *is* that icepick today?

http://www.guardian.co.uk/world/2005/jun  /16/past.russia

Posted by Uncle_Billy | Report as abusive