The House of Representatives is set to vote today on a measure that would effectively tax MORE than 100% of some Americans’ income.  In an attempt to placate the public’s wrath over bonuses paid to employees at AIG and other TARP recipients, Congress will seek to cut off bankers’ noses to spite America’s face.

As we examine this issue, let’s keep in mind that at many companies, particularly on Wall Street, the term “bonus” is nearly interchangeable with the term “compensation.”  The difference is just semantics.  The rationale for paying the bonus is to have a carrot for employees to strive for during the year (over which time these employees receive comparably less in the form of a salary, or draw).  No performance, no carrot.  While it’s certainly true that some bonuses have been paid for subpar performance, the overwhelming majority are paid as the result of success.

Paying a higher salary and lower (or zero) bonus removes the incentive to perform and increases risk to shareholders, including (now) the government.  The less profitable a given company, the less likely the government is to continue receiving its preferred stock dividend, via the TARP program, and ultimately the return of its original investment.  (Recall that many of these firms were forced, essentially at gun point, to take these government funds whether they wanted them or not — the strings were attached later).

While it is clearly Congress’s intent to strip TARP firm employees of any “excessive” compensation, the effort is misguided.  The vast majority of these “bonus” recipients have generated profits for their respective firms, often far outweighing the losses of their colleagues that Congress is endeavoring to punish.  To paint them all with the same broad brush does a great disservice to the good performing employees as well as to the Treasury’s collective wallet.

Let’s look at this from another angle.  Take General Motors.  Here is a company that has lost tens of billions of dollars, not for one quarter or one year, but year after year after year.  This company has also received billions of dollars of taxpayer money — money that GM was NOT forced to take, unlike the situation at many banks.

Would it be just as fair for Congress to enact legislation confiscating taxing 90-100% of the wages of UAW workers because the company for which they work was (is) a financial disaster?  Similarly, how about the workers at GM subsidiaries such as OnStar?  Many of these employees (one of which is a close friend of The Lamb) received bonuses for contributing to OnStar’s success despite the fact that GM was hemorrhaging money like a broken Vegas slot machine.  If these employees can escape the Congressional tax assessor, why should bank employees whose units were profitable labor under an exorbitant tax regime?

The illustrious Charlie Rangel, Chairman of the House Ways and Means Committee that is shepherding the bill, in explaining how he arrived at the 90% federal tax rate for TARP bonuses, explained, “we figure the local and state governments will take care of the other 10 percent.”

This reminds The Lamb of (in)famous Ohio State football coach Woody Hayes.  Leading archrival Michigan (Go Blue!) 42-14 late in their annual football death match in 1968, the Buckeyes scored a meaningless touchdown to go up 48-14.  Rather than kick the extra point, Hayes elected to attempt a two-point conversion in order to hang half a hundred on The Lamb’s alma mater.  The attempt was good and tOSU won 50-14.

After the game, a reporter asked Hayes why he had decided to go for two.  The old coach growled, “Because they wouldn’t let me go for three.”

In their vindictive attempt to punish successful employees for the failures of a minor few, Congressman Rangel and his legislative cohorts are demonstrating a poorer sense of fair play than Coach Hayes did over 40 years ago.  If they succeed, The Lamb is one alumnus who won’t be singing Hail to the Victors.