The Lord Mayor of London yesterday said that if the British government went ahead with its plan for a one-time 50 percent tax on the huge bonuses of financial heavies in “The City” (London’s Wall Street), 9,000 of these worthies would pick up stakes and move their operations to another country. There’s a natural tendency upon hearing this for many people to demand that these over compensated tax refugees not be issued passports unless they promise never to come back.
But let’s resist this impulse. Rather, let’s look at how good such an idea really is from the standpoint for the financiers themselves.
This is a timely exercise in this country. That’s because the Obama Administration is now seriously looking at going after our own Wall Street bonus babies, who will certainly threaten (there’s a 100 percent guarantee here) to leave the country if their own huge comp packages are hit too hard.
So then. About such threatened relocations.
Moving from one city to another in the same country is viewed differently by different groups. For kids going off to college its generally seen as a wonderful way to get out from under parental control. For grads getting their first big job its a great adventure. But for top managers things are very different. Such people have houses to sell and new places to buy or rent. They have spouses who have their own lives where presently lived. Young kids in the family have a network of friends they are loath to leave. There are established relationships with churches, charities, country clubs, community groups, et.al. All very good personal reasons for not picking up stakes and moving to another city just to avoid paying more local taxes. And of course such reasons are multiplied many times over when moving to another country just to avoid taxes — even when a company is paying the costs of the move.
That’s the personal reasons why Wall Street bonus babies might not want to set up life and shop in another nation. The business reasons for not doing so are far more compelling.
These days you can access financial news and buy and sell securities as easily from a Mongolian yurt as in a Manhattan office tower via electronic communication devices. But anyone who knows the way Wall Street operates knows this doesn’t mean much when it comes to The Street’s real business doings.
Deals may be signed in a lawyers’ office. But the tips, the insights, the confirming handshakes, are done on the golf course, over lunch, during a night of drinking with people you’ve gotten comfortable enough with over time to share stories of infidelity and kids on drugs along with the market chatter. You move to another country and you lose this daily intimacy. Sure, you may have shared a glass of bubbly at Davos with your new country’s financial associates. But it takes long years to get accepted and really ‘get in the local know.’ Such knowledge isn’t shared via telephones or video conferencing.
Then there’s the whole beating-the-tax thing. Ask anyone who is the entity spewing money into markets these days and the answer always comes back: the government. So here you are, with a long history of getting a piece of government debt sales or other profit-producing government-related action, and you just screwed your biggest customer by leaving the country to get out of paying that customer some taxes. Would even an open hearted guy like Tim Geithner forgive and forget? Don’t bet the biz on it.
And there’s the retail end of your traditional business. I would personally love to be doing the advertising for a competitor of a financial institution whose top managers have moved themselves and their company to another country to beat some taxes. How does this sound for an ad sound bite: ‘Do you want to do your banking (brokerage) with an outfit that was bailed out with your tax money, then left the country to beat paying its own taxes?’
Put it all together. Here’s what comes out. The bonus babies of Wall Street aren’t going to jump ship if they get hit with some extra taxes. They know they will still be pretty much at the policy helm. And bet your B.P.s, after the moans and groans, and whines and slimes, they will still get the best tax lawyers in the country to keep from paying anything resembling their fair share.