Harry Moroz

A Bonus By Any Other Name

A quick note on the bonus bill. Marc Ambinder at The Atlantic and Josh Marshall at TPM have raised concerns that companies will simply create bonuses that aren't called bonuses that would avoid the legislation's 90% tax. Ambinder asks:

why companies couldn't simply figure out a non-bonus way to make up for the compensation loss is not evident

The legislation explicitly prevents such behavior by considering "Any reimbursement" by the company to the taxed employee to be itself a bonus for the purposes of the tax.

Josh's concern is perhaps more valid:

what's to stop the companies from just folding the 'bonuses' into straight salary income? In which case, the whole thing goes out the window?

Presumably, companies could do this next year, but it seems like adjusting currently existing compensation schemes would be difficult (Fannie and Freddie bonuses, for example, are locked in for this year, at least for now). But Josh's point is quite relevant down the road. We should be seeking out accountable corporate pay practices, rather than reacting to buzzwords like "bonus". Still, as I said below, the tax is ultimately a good thing.

Harry Moroz: Author Bio | Other Posts
Posted at 2:26 PM, Mar 20, 2009 in Tax Policy
Permalink | Email to Friend