Wednesday, March 25, 2009

New 90% tax charge on bankers bonuses

This is not as far fetched as it might seem. Indeed it's what may soon become the law in the USA.

Last week the House of Representatives voted by a massive majority - 328 to 93 - in favour of a plan that would force employees who earn more than $250,000 a year to pay $9 in tax of every $10 they receive in additional "rewards".

The Bill creates a 90% tax charge on any bonus received by those affected on or after 1 Jan 2009, even if it is in relation to a previous year. It must still pass a Senate vote and be signed by President Obama, (although he announced yesterday that he would veto the Bill). If it were to pass however this would not be first time that US legislators have introduced punitive taxes on behavior that lawmakers find objectionable.

Might the Chancellor's Budget on 22 April contain a similar provision affecting the recipients of bonuses by banks now 'owned' by the taxpayer? If so it would need to deny 90% tax relief for any tax sheltering attempted by the recipients (eg: by way of contributions to their pension schemes).

I suspect that even if such a proposal was announced it would only be another headline grabber. Haven't most of the bonuses in question already been paid? It's almost inconceivable that any penal tax rate would be backdated to the current tax year so would only affect bonuses paid after Budget day.

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