French President Nicolas Sarkozy and British Prime Minister Gordon Brown have come together for a common goal: to levy a large tax on bankers. I noted Britain's announcement a few days ago, and today we learn that France has a similar plan. Do two major European countries joining forces to poach a portion of banker bonuses mean that more nations are likely to jump on the bandwagon?
Here's what Sarkozy said about the move, via Bloomberg:
"We can only tax them if we tax them both sides of the Channel," Sarkozy said in Brussels today. "In the decision that Gordon and I are taking together, we want and we wait for others to do the same, because we are in a globalized world." He said "I see many declarations of heads of states joining us." Sarkozy didn't give any details on the French plan.
A few observations.
First, Sarkozy hasn't revealed the specific bonus taxation plan yet. But I would expect it to look a lot like Britain's scheme, given the unification rhetoric that Sarkozy uses. It even sounds like Brown and Sarkozy may have conferred before any of these taxes were announced. So France will probably also levy a one-time tax in the ballpark of 50%, like Britain.
Second, Sarkozy must not want any of London's bankers to take the trip across the Channel. This could have marked an opportunity for French banks to lure away some of London's bankers who were angry about the punitive tax. Clearly, Sarkozy must want no part of them.
Will other countries sign on? Some others in Europe could. It's not beyond the realm of possibility that Spain and Germany could, for example. But others, like Switzerland, might be a little more difficult to get on board. I'd pretty surprised if the action spread beyond Europe, however. I don't think Asia is quite as angry at its bankers.
Sarkozy notes that the tax now applies on "both sides of the Channel," but could it happen on both sides of the Atlantic Ocean? I stand by my view from a few days ago: I doubt it. France joining in does put some pressure on U.S. liberals to push for such a tax, but I just don't see it passing. Republicans would salivate over the opportunity to label Democrats as "socialists" in next year's mid-term elections if they instituted such a policy. Even though public support for Wall Street is probably as low as it's been since the Great Depression, more moderate Americans might morally object to a tax like this not being in the right spirit for America.
Such a tax would also almost certainly face constitutional challenges in the U.S. Back when I was writing for Forbes, I wrote about a similar threat towards AIG executives who hoped to collect guaranteed bonuses. At that time, I spoke to Harvard Law Professor Lawrence Tribe about whether or not a tax targeting a specific group of individuals would be constitutional. Based on the conversation, I wrote:
The constitution would not preclude an excess tax for a specific group of individuals at a very high rate. Moreover, Tribe argues, the taxes are not meant to be outwardly punitive--the purpose is to recover bonuses paid as part of federal expenditures, not to punish employees.
So maybe if the Congress could prove that the taxes were meant to cover federal expenditures due to the crisis, it would fly. In that case, I was talking about the tax repaying money taxpayers would lose on the AIG bailout. But since all investment banks left appear that they'll be able to pay back their bailout money, I'm not sure that argument would fly. Such a one-time tax would appear to be more of a punishment than a legitimate budgetary strategy.