Five Reasons Not to Pass the Bonus Tax

I interviewed a retired hedge fund manager who voted for Barack Obama about the bonus tax last week. Here’s what he said: Everyone is outraged by AIG’s actions, but the congressional response is problematic for the following reasons.

1. It is effectively revisionist history and makes it impossible for market participants to play by the rules as they can change, not only on a moment’s notice, but magically retroactively.

2. Bonuses such as those paid to Merrell Lynch employees in December would not be subject, but those banks such as BofA and J.P. Morgan, who pay on a February cycle would get hit. It’s akin to performing delicate surgery with a hatchet and will unfairly blanket countless individuals who were in no way associated with AIG.

3. It will disincent firms that need capital from asking for government assistance.

4. It underscores concern in the private sector that we’re now living in the Wild West, which will slow private sector participation for fear of the government changing the rules as we go.

5. It will push talent out of the financial sector at the very time we need the best and brightest to navigate the storm.