Bonus Tax: Now What?

March 20, 2009 — -- The House acted with lightning speed to slap a big tax on bonuses at firms like AIG, but now the bill faces an uncertain future.

President Obama is giving the bill a cool reception and in the Senate, where it was introduced, Republicans have slowed down the legislative process, arguing against haste.

Politically, supporting a tax on bonuses for bankers is easy -- all but six Democrats and nearly half of the Republicans in the House supported the tax.

Even Republicans who have signed a pledge never to raise taxes, including the No. 2 Republican in the House, Eric Cantor of Virginia, voted in favor of the tax.

But there's a larger problem that's plaguing lawmakers: The bonus tax may simply be a bad idea with unintended consequences that could complicate economic recovery efforts.

Opponents say the bonus tax may scare away the very companies that the Obama administration's soon-to-be-announced plan for toxic assets depends on. Treasury Secretary Timothy Geithner's plan depends on attracting public financing to buy toxic assets. Even without the bonus issue, this may be a tough sell. With the bonus issue, those private investors may simply stay away.

The lead editorial in today's Washington Post lays out the argument against the measure, saying the House "had the feel of a mob scene yesterday."

"By changing the terms of a deal months after it was entered into, Congress will show the government to be an unreliable partner, further draining confidence from the financial system and endangering long-term recovery," the editorial said.

This concern explains, in part, why the White House has stopped short of saying the president will sign the bonus tax bill.

And in a jocular appearance Thursday on "The Tonight Show With Jay Leno," Obama seemed to give the legislation a gentle thumbs down.

"I understand Congress' frustrations and they're responding to I think everybody's anger," Obama said. "But I think that the best way to handle this is to make sure that you close the door before the horse gets out of the barn. And what happened here was the money's already gone out and people are scrambling to try to find ways to get back at them."