While many firms in the financial industry are expected to announce potentially record-setting bonuses this month, members of Congress and the President have unveiled initiatives to curb and/or generate revenue from this sector. On Tuesday, Rep. Peter Welch (D-Vt.) introduced the Wall Street Bonus Tax Act (H.R. 4426), a measure that would levy a 50 percent tax on large bonuses paid to employees of firms that have received financial assistance through the Troubled Asset Relief Program (TARP). This tax would apply to all bonus compensation – both cash and stock awards – exceeding $50,000, and would be used to fund a new direct lending program administered by the Small Business Administration (SBA). According to a press release, this bill mirrors similar measures already taken in Great Britain and France to tax excessive bonuses.

On the same day this legislation was introduced, Rep. Dennis Kucinich (D-Ohio) introduced the Responsible Banking Act of 2010 (H.R. 4414), a bill that would impose a 75 percent tax on bonuses paid for services performed by “any specified business,” defined in the bill as: the Federal National Mortgage Association; the Federal Home Loan Mortgage Corporation; any business as a financial institution, insurance company, hedge fund, financial advisor, or a broker or dealer in securities; and any lending or finance business. This bill does not limit the tax to beneficiaries of the financial bailout. If enacted, the provisions of this bill would sunset after five years.

Meanwhile, on Wednesday, House Financial Services Chairman Barney Frank (D-Mass.) announced that his committee will hold a hearing on January 22 to discuss the issue of compensation practices in both financial and non-financial firms. In addition, today President Obama unveiled a plan to impose a fee on financial institutions that received TARP funds directly or indirectly. According to a White House summary, (pdf) Obama’s budget will include a fee on approximately 50 of the nation’s largest financial firms. Companies to be affected by this plan include broker-dealers, bank holding companies, thrift holding companies, insured depositories, in addition to insurance companies that own one of the other entities. The “financial crisis responsibility fee” would only apply to businesses that have more than $50 billion in assets. While most would be U.S. companies, some U.S. subsidiaries of foreign-owned companies would face this tax as well. Additional details of this plan are expected to be released over the course of the month as the President finalizes his budget.

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