Friday, March 20, 2009

Why Politicians Shouldn't be Running the Economy, Friday, March 20th Edition: Driving talented people out of the companies we are trying to save

Yesterday the Congress voted to penalize a company it is trying to save. This is considered a rational action in our nation's capitol.

In what one writer calls the "Popular Rage Tax," the Congress voted to slap a 90 percent tax on bonuses that put the household income of any family that includes someone working for one of the companies now run by the government with annual income over $250,000. Since it is on household income rather than individual income, that means this if you are married to someone at one of these companies, your bonus will be subject to the same tax.

Henry Blodget, at Clusterstock puts it nicely:
Thanks to our stupidity bailouts, we now own major stakes in these firms--at mind-boggling expense. So it's not clear why we want to destroy them. But that's what we seem determined to do.

Believe it or not, hidden inside these companies are thousands of decent, competent people whose households bring in more than $250,000 a year. Many of these folks had NOTHING to do with the gambling addiction that bankrupted their firms. Many of them still have a choice where to work. And now that they've learned that their family's pay will be capped at $250,000 indefinitely, many of them will quickly decide that now is a good time to pursue their careers elsewhere. (That is, unless their firm takes the easy and obvious step of just paying them a fatter salary, which just renders the whole thing a farce.)

...The real lesson here, unfortunately, is that it's a disaster for the government to run private companies. We used to understand that. But ever since we started telling ourselves that we had to save bankrupt institutions by taking them over and pretending not to "nationalize" them, we have apparently forgotten.
So instead of making it attractive for talented people to work for companies that need them very badly, we have made it less attractive. In what world does this make good economic sense?

HT: Marginal Revolution


Anonymous said...

Is this UCSB Marty(in)? If so, I am glad to see you are still fighting the good fight. Though, to be honest, I fear it has been lost. The majority, whipped into a frenzy of resentment and, more importantly, relieved by W of any income tax burden linked to the goodies of Washington, has figured out that government is free so long as you only tax the rich. They will never again be taxed. So . . . we are all French now. Let the demographic melt down begin! Cest la vie. Rick De La Mora.

Martin Cothran said...


E-mail me: martincothran at