Taxes, banks and bailouts detrimental to economy

Over winter break the British government announced a 50 percent tax on banker bonuses of more than $40,700. Like the United States’ banks, British banks were also bailed out in the current recession, and many were outraged by these bonuses. Many say that the U.S. should follow suit with the Europeans’ example. To do so, however, would be idiotic, unthinkable and downright unconstitutional.

Thankfully, our Founding Fathers were intelligent enough to write down the rights we have as Americans. They learned from their previous rulers that laws can sometimes be unfair and unjust.

According to the Constitution, neither the federal government nor the states can make an ex post facto law. This means that they cannot make something illegal after someone has already done it. For instance, let’s say one day you buy a cheeseburger, the next day the government makes cheeseburgers illegal, and they put you in jail because you broke the new law yesterday. Any sane courtroom with a proper understanding of the Constitution-although those are hard to come by these days-would throw out your case because you did not commit a crime when the law was in effect.

The same should be true for taxes. After all, nowadays, taxes are used to control people’s behaviors. Case in point: cigarette and soda taxes. However, the Supreme Court has determined that ex post facto laws do not apply to taxes. Apparently, nine men and women know what is better for the country than the Founding Fathers did. Despite what the justices say, taxes like the British banker tax are unconstitutional and should not be allowed for this reason alone.

Aside from the legal issues of this sort of tax, other problems will arise from it. This new tax may be the first step in destroying Britain’s banking sector. Big banks like Goldman Sachs are now threatening to leave London for places like Singapore, where taxes are much lower and the regulation is looser. Innovations in technology would make this much easier and plausible. If the U.S. government takes the same route, U.S. banks might follow suit.

In the end, laws like this probably won’t work. We all must remember one of the most important principles of economics: People respond to incentives. One of two things is going to happen. Bank prices will go up, shifting some of the weight of the tax on bank consumers. Or, banks will simply put off giving bonuses until the tax goes out of effect. Both of these situations will not affect the bankers’ bonuses at all, and the former may even make a recession even worse.

Because this is a pointless idea, the French did the same thing a few days later. This would all be solved if the government had not bailed out these companies and stayed out of the economy. Then what banks do with their money wouldn’t be our concern. That is, if you don’t bank with them.

Michael Lauck is a sophomore broadcast journalism and economics major from Houston.