Bonus Babies

So London is taxing big bank bonuses, and France is close behind. Who do you think is next?

France’s President joined England’s Prime Minister to announce a special surtax of 50% on bank bonuses in excess of $40 thousand. This is on top of the 65% or 70% marginal tax rates that highly compensated individuals in Paris and London already enjoy. The two leaders clearly implied that they hope the U.S. will follow suit. According to one official, the tax is intended to discourage banks from making politically insensitive payments.

It’s by no means clear that the US will join the party, however. David Patterson, Governor of New York, recently spoke and praised the banking industry as an engine of growth for his State. It remains to be seen, however, what Washington will do. Somehow, I can’t see Congress holding back when multi-billion dollar bonuses are being paid.

So if all the Western nations begin taxing bankers, where are the bankers going to go? How about, maybe, east? It’s already true that a large portion of the world’s free cash flow ends up in China. If the western nations are intent on punishing bankers, those bankers will just start leaving. At least one major hedge fund has relocated to Singapore. If punitive taxes are in the works, it isn’t hard to imagine more following.

In economics, you get more of what you subsidize and less of what you tax. If we’re going to punish successful bankers and reward those with political connections, we’ll get less success, and more politics.

Douglas R. Tengdin, CFA
Chief Investment Officer
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By | 2014-09-05T14:36:05+00:00 December 10th, 2009|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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