The US House of Representatives has voted for legislation that will impose a 90% tax on any cash compensation over $250,0000, paid to bankers after 31st December last, at firms which have received more than $5bn in government bailout funds.

The legislation will now go before the Senate, which looks likely to impose even tougher changes, as four senators have now proposed taxes of 70% are levied on individuals (earning over $250,000) at firms which have received more than just $100m in government assistance.

As it stands, the big losers will be senior staff at AIG, Bank of America / Merrill Lynch, Citi, Goldman Sachs, JPMorgan, Morgan Stanley and Wells Fargo. And all but Merrill Lynch staff (who received their bonuses before the retrospective cut-off point) look like losing almost all of their 2008 bonus payouts to tax (state and local taxes will take care of most of the rest). Just how this will impact (if at all) employees of these firms who work outside the reach of the US tax code is currently unclear.

So several thousand bankers who thought that they had bagged bonuses for their work in 2008 look like now finding themselves financially disadvantaged. One banker told Here Is The City: 'So much for the 'Land of the Free'. Who would ever want to work for a bank in America now ? These lawmakers appear to have done in less than 60 days what the Soviet Union couldn't do to our country in over 60 years - turn us into a communist-like dictatorship!'.

As staff and firms examine their options in the likelihood that this legislation ends up being signed into law, one thing is clear - the only senior employees who will want to work at firms which have received significant US government assistance are those that cannot obtain employment anywhere else.

There is also likely to be a mad rush by firms to repay bailout money (over 200 banks have already withdrawn applications for bailout funds). And, as paying back these funds early will have an impact on their capital position, several banks will no doubt pull in their horns again, and restrict the amount of funds they lend to individuals and businesses to compensate. The end-result of this legislation could, therefore, be to prolong (and perhaps deepen) the recession in the US. Furthermore, some firms are now thought likely to refuse to take part in the government's latest bank bailout plan (designed to take toxic assets off the balance sheet) for fear that this will leave them further at the government's mercy.

Vic Daniels, the publisher of Here Is The City said: 'The danger here is the 'law of unintended consequences'. By giving in to the emotion of the moment, US lawmakers are not exhibiting the leadership required to help America steer the world out of recession. This legislation, although good politics for those in Congress who vote for it, sends the wrong message about how business is now conducted in the US. And, in the final analysis, all the good work that has been done to strengthen the financial system and the economy could be quickly undone. Is it really worth risking several more years of recession just to stick it in the eye to big bonus bankers ? It seems a bad trade to me'.

Reader Comment

1. 'Quite frankly, this legislation is anti-American. It's against everything we have ever stood for. Many of these bankers actually hit their targets and succeeded in 2008. Where's the incentive to work hard now ?'.

2. 'If it's 'French' taxes, then it's a 'French' economy and 'French' work attitudes. 3 hour lunches, the afternoon off and not doing very much when you are in the office. Time for bankers to live a little - the US taxpayer's picking up the tab!'.

3. 'Instead of spending their time with politics and all the other nonsense, French employees work far harder than their American counterparts, and most of them have a far better understanding of what they are doing - witness the success of BNP and SG's equity derivatives businesses'.

4. 'If these bankers had done the decent thing and foregone large bonuses for 2008, these kind of measures would not be necessary. They need to take collective responsibility, and it's important that they recognise that they are part of a firm, a country and a world economy'.

5.' I was quite happy to do my bit for the US economy. I had planned to buy a new US car with my bonus. Clearly I won't be pumping much money into the economy now. I was on a 'buy American' kick too, but now I will go out of my way to ensure that I purchase anything but American goods and services'.

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