April 6, 2010

Tax Wall Street Mega-Bonuses to Fund Property Tax Relief and

Protect Vital Public Services – After all, it’s Our Money!

Dear Legislator:

Maybe someone can explain this to us:

• In 2006 and 2007, CEOS at 10 of the top bank and mortgage companies pocketed
total compensation worth $548 million, while those companies pulled down
profits of over $68 billion.

• In 2008, we learned that those profits and executive compensation were built on
a Ponzi scheme of subprime mortgages and risky derivatives. When the Ponzi
scheme collapsed, 8 of those top ten companies went bankrupt or had to be taken
over by the government. The U.S. was plunged into the worst recession since the
Great Depression. Unemployment soared over 10%, millions lost their homes,
and across the country, gaping holes opened up in state and local government
budgets.

• In order to stave off an even worse economic crisis, U.S. taxpayers financed a
huge bailout of the financial industry. Literally trillions of dollars of our taxpayer
money financed the bailout.

• The bailout worked—especially for Wall Street. By 2009, Wall Street banks and
investment houses posted profits of $64 billion—triple the previous record. And
Wall Street’s top executives pocketed bonuses in excess of $20 billion, not much
less than they took home in the “boom year” of 2006.

In light of these facts, can anyone explain why the Legislature shouldn’t impose a modest
tax on Wall Street bonuses to recover a portion of our money in order to relieve the property
tax burden on struggling homeowners and to preserve vital public services?

The Working Families Party is proposing that at a time when all New Yorkers are
facing ever increasing property tax bills and deep sacrifices exacted by huge budget gaps,
the wealthiest among us should share the pain of that sacrifice—especially since their huge
salaries and bonuses were only made possible by the trillions in taxpayer money used to bail
out Wall Street in 2008 and 2009.

Our proposal:

• A 25% tax on all bonuses worth more than $50,000 where the recipient’s
total compensation is $250,000 or more.

• The tax scales up to a 50% rate on all bonuses worth more than $50,000
where the recipient’s income exceeds $500,000.

• This two-year bonus tax will provide $4.7-6.9 billion in revenue that should
be used for immediate property tax relief for struggling New York
homeowners and to mitigate devastating cuts in vital public services.

• Tax revenues from the deferred portions of bonus awards are likely to be
comparable to the cash bonus revenue numbers, providing additional funding
to continue property tax relief and close the budget deficit.

We simply can’t imagine a reason why a temporary tax on excessive Wall Street
bonuses should not be part of the solution to solving the property tax crisis and closing the
historic budget gap New York faces today. It’s a matter of basic fairness. We urge you to
support a Wall Street bonus tax today!

Sincerely,

Bob Master Sam Williams Dan Cantor

Co-Chair Co-Chair Executive Director
Working Families Party Working Families Party Working Families Party
 Tax Wall Street to Provide Property Tax Relief for Main Street

For New Yorkers, times are tougher than they’ve been in over a generation.
Nearly a million New Yorkers are out of work. Massive cuts to education, health care, and other
essential public services are looming. High property taxes are more unaffordable than ever to
homeowners and renters alike – forcing many New Yorkers from their homes. Every day, more
households make devastating decisions about their priorities: paying their electric bill or buying their
groceries; paying the mortgage or sending their kids to college.

Meanwhile, Wall Street is living it up.

Just one year after the crash that Wall Street created, the financial industry has raked in a record-
busting $63.4 billion in profits. That’s triple the previous record. And it’s all courtesy of cash
bailouts, subsidies, and virtually free loans –underwritten by 3 trillion taxpayer dollars. While
taxpayers gave up trillions, a select few on Wall Street took in over $20 billion in bonuses. That’s an average
cash bonus of almost $125,000 – more than double the median salary in New York!

Main Street bailed out Wall Street. And Wall Street cashed in.
It’s time for Wall Street to pay New Yorkers back.
Along with soaring unemployment, waves of foreclosures, and spiking food stamp applications, the
economic collapse wrought by the financial industry has punched a $9 billion hole in the state’s
budget. Those who got mega-rich while creating the financial crisis, and are now benefiting from the
bailout, should make sure we can pay for education, healthcare and property tax relief.
It’s the least they can do.
__________________________________________________________

How The Bonus Recapture Tax Works:

A temporary Bonus Recapture would tax bonuses worth at least $50,000 that are part of a total
compensation package higher than $250,000 at a graduated rate of 25%, reaching 50% when total
compensation passes $500,000 -- generating between $4.7 and $6.9 billion

Bonuses awarded as “deferred compensation,” such as time-vested stock and options, will bring in
revenues over time that will likely double the revenues from cash bonuses.

Generated revenue should be split evenly to fund property tax relief and to close the deficit. Over a
third of New York households would benefit from “circuit-breaker” property tax relief, which would
cap property taxes at a reasonable percentage of household income. Meanwhile, less than 1.5% of
New Yorkers will receive bonuses big enough to be subject to this tax.

Center for Working Families

1133 Broadway, Suite 332, New York, NY 10010
(212) 206-9168 • www.cwfny.org
 Bonus Recapture Tax Plan
Bonuses are typically paid out both in year-end cash and in time-vested stock options realized in
subsequent years. As a temporary measure to recapture Wall Street windfalls for Main Street, a Bonus
Recapture Tax should apply to all bonus compensation – both cash awards and deferred awards.

What is taxed:
Bonuses higher than $50,000 that are
awarded to individuals who receive
more than $250,000 in total
compensation.
Total compensation accounts for both salary and bonuses received.
The tax itself is only levied on the bonus, not the salary portion of
total compensation.
Bonuses over $50,000 awarded to employees who received
$250,000 or more in total compensation would be taxed using a
graduated rate from 25%, reaching to 50% of bonus when total
compensation passes $500,000.
Deferred compensation would be taxed at the same rates (but the
$50,000 threshold would not apply if it was already applied to the
year-end cash bonus).

How it is collected: The tax would be collected as a payroll tax from the firms awarding
As a payroll tax the bonuses. As a payroll tax, it would be collected at the
institutional level, not at the individual level. Firms can choose
whether to absorb the cost of the tax or pass the cost onto employees
through reduced awards. The remainder of a given bonus would be
received by the employee and taxed as regular income.

Time period: The tax would be temporary and cover at least an entire bonus
Temporary tax, for a maximum of two season (which overlap calendar years) to ensure bonus payouts are
calendar years. not simply pushed forward past the measure’s sunset. A retroactive
component for the 2009-10 bonus season is important to recover
taxpayer monies resulting in 2009’s record profit year.

Preliminary Estimates of Net Revenue:

$4.7b - $6.9b1 from cash bonuses.
Eventual revenues from deferred compensation will likely match or be greater
than cash bonus revenues.

To make Main Street property tax relief permanent and fund essential state
expenditures, additional tax reform measures should be adopted.2

• Make current state income tax brackets permanent. Recently adopted brackets for income over
$300,000 are expected to yield an average of $4.3 billion per year for 2009, 2010, and 2011. Adding a
bracket for millionaires would increase those revenues further.

• Updating the state’s financial industry tax rules – which have fallen behind as the finance
industry’s business practices have evolved – would add $300 million to annual state revenues from
high-earning businesses like banks and hedge funds.

1
Revenue outcomes depend on where graduated tax brackets are placed, which partially accounts for the wide range of preliminary
estimates. Bonus pool estimates are also somewhat uncertain and help account for the range in estimated revenues. Bonus estimate
sources include the NYS Office of the State Comptroller, NYS Division of the Budget, Johnson Associates, Inc., and the Options Group.
2
Proposed reforms are detailed in a forthcoming brief from the Center for Working Families.

Center for Working Families

1133 Broadway, Suite 332, New York, NY 10010
(212) 206-9168 • www.cwfny.org