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Mad About Bonuses? Let's Make a Deal

Raising the top marginal tax rate to be paid by earners of extremely high incomes is not about punishing work, or class warfare. It's about a fair allocation of responsibility.
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The bonuses will be paid, the amounts will strike many as obscene, and the anger will grow.

If you are mad as hell and ready to do something about it -- talk taxes.

We , the taxpayers, faced with a near collapse of the country's financial system, were begged to invest trillions to keep the system going. Goldman Sachs leader turned Treasury Secretary Henry Paulson told us in September 2008 that without this intervention, our system would self destruct. But not to worry, he told us, in selling his original version of TARP . If we hand over vast sums : "The ultimate taxpayer protection will be the stability this troubled asset relief program provides to our financial system, even as it will involve a significant investment of taxpayer dollars. I am convinced that this bold approach will cost American families far less than the alternative -- a continuing series of financial institution failures and frozen credit markets unable to fund economic expansion,"

So we did our part. To be sure, by and large the country as a whole benefited. But the biggest rewards from our collective open checkbook -- consisting of TARP, Fed access to its low interest borrowing, the funding of AIG that allowed many investment banks to avoid losses, and many other costly investments -- flowed not to the millions of unemployed. It didn't create a wage hike for average workers. It didn't boost the pay of police, firefighters and other people who keeps us safe every day. And it certainly didn't open the floodgates of loans to small businesses.

It did enable what apparently will be record bonuses , paid at the very same institutions that were almost wiped out.

In this case, it is actually pretty easy to draw a straight line between our tax dollars and the enormous profits flowing to a very few. And many are asking: "If it's our money, why are a small number of high rollers putting it in their pockets?"

The anger boiling over has led to calls for many things -- salary caps, in particular. But in our system, government deciding what is the right pay for a given job doesn't work very well.

Instead, because the public took a big risk by putting up our money, we should get a big return. Hank Paulson, a consummate dealmaker for decades when handling investment bank money, apparently forgot to cut the same deal when he was a steward for the public's money. But it is not too late to correct the problem.

What government can do is adjust tax rates to fit the circumstances. If someone is getting a million dollar or greater payout for 2009, it is pretty clearly fueled by what America did with its money.

Would an even split -- 50% for the bonus windfall recipient, 50% for the public -- be a fair deal ? Should we have gotten even a 60/40 or better deal if it were cut before the funds began to flow to the biggest financial institutions in the country?

Congress at one point apparently thought a 90% split back to the public was fair, at least for a while. A 50% share back to the American taxpaying public would be relatively mild by comparison.

Raising the top marginal tax rate to be paid by earners of extremely high incomes is not about punishing work, or class warfare, or any of the other slogans that conservatives frequently throw up against a serious discussion of tax policy.

Instead, it is about a fair allocation of responsibility for an America in which it is possible to earn $10 million in a year. It is about paying for the recovery of the country in a time of high unemployment, the cost of 2 wars, and a decade of benefits from earlier tax cuts. It is also a recognition that self-made fortunes are never entirely self-made.

As Warren Buffett has made the point: "I'll bet a million dollars against any member of the Forbes 400 who challenges me that the average (federal tax rate including income and payroll taxes) for the Forbes 400 will be less than the average of their receptionists." This year he should extend the bet to a whole host of bonus recipients and other high earners, and see if he gets any takers -- he hasn't so far.

Some angry Americans are out in the streets calling for fiscal discipline, taking personal responsibility, and not saddling future generations with our debts. Fair enough -- if you aim that responsibility back at the so few who have benefited so much from the dollars of so many.

David Abromowitz is a Senior Fellow at the Center for American Progress, www.americanprogress.org