Monday, July 13, 2009

A Bonus Tax Casualty


Until a year ago, I was The Wall Street Journal's personal-finance columnist -- and widely considered to be a friend of the ordinary investor.

But that was then. In April 2008, I left to join a new Citi venture. (What follows are my views -- not those of Citigroup Inc.) For the past year, I thought I was involved in building a wonderful, customer-friendly business that minimizes conflicts of interest, favors index funds, and helps everyday Americans with their entire financial lives.

It seems that I was sadly mistaken. If the rebuke from Washington is any guide, I have apparently played an integral part in the collapse of the global economy and the financial markets -- and I must be punished.

I used to read Jonathan Clements column, although he did seem like a bit of a dweeb. They were down to earth and practical, with a lot of personal information. I remember when he left the paper – I didn’t like his replacement very much.

Should the House bill become law, my bonus will be taxed at up to 90% once my adjusted gross income hits $250,000. …

I realize readers won't be shedding tears -- $250,000 is a decent chunk of change (though, trust me, it doesn't buy that great a lifestyle in New York). …

Not buying the hardship angle? Not persuaded that this tax is unfair? Consider this truly searing indictment: A 90% tax is downright stupid, creating bizarre disincentives. Exhibit A? That would be me. Once my total income hits $250,000 for the current calendar year, I will have no incentive to work a single day more in 2009. After all, for every extra dollar of income I earn above $250,000, I will lose 90 cents of the bonus I received earlier this year.

Being somewhat knowledgeable about personal finance, I'm trying to figure out how to finagle this. By minimizing my investment income in 2009 and pushing other income into 2010, I reckon I can delay the day of tax reckoning. But even with that finagling, by mid-October, I will hit $250,000 in total income -- and have no incentive to earn any more income in 2009.

At that point, I plan to ask Citi for an unpaid sabbatical. Forget earning more income. There's no point. Instead, you will find me hunkered down at home, desperately trying not to spend money. This will make entire financial sense for the Clements household. What about the struggling economy? Not so much. [emphasis added]

You know those children’s stories (and movie) where the bad fish are all caught in the fisherman’s net and the good fish too! That’s your Congress at work.

You know how the good fish always manages to break free of the net in some totally unrealistic way? The appropriate synonym for unrealistic is Orwellian.

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