U.S. Eyes Bank Pay Overhaul

Barack Obama and his administration have been considering a major bank overhaul as a potential solution to stabilize the way financial services companies are paying their employees and executives. Check out the following segment of a WallStreetJournal.com article discussing the topic.

The Obama administration has begun serious talks about how it can change compensation practices across the financial-services industry, including at companies that did not receive federal bailout money, according to people familiar with the matter.

The initiative, which is in its early stages, is part of an ambitious and likely controversial effort to broadly address the way financial companies pay employees and executives, including an attempt to more closely align pay with long-term performance.

Administration and regulatory officials are looking at various options, including using the Federal Reserve's supervisory powers, the power of the Securities and Exchange Commission and moral suasion. Officials are also looking at what could be done legislatively.

Among ideas being discussed are Fed rules that would curb banks' ability to pay employees in a way that would threaten the "safety and soundness" of the bank -- such as paying loan officers for the volume of business they do, not the quality. The administration is also discussing issuing "best practices" to guide firms in structuring pay.

At the same time, House Financial Services Committee Chairman Barney Frank (D., Mass.) is working on legislation that could strengthen the government's ability both to monitor compensation and to curb incentives that threaten a company's viability or pose a systemic risk to the economy.

It is unclear how such a bill would fit with what the Fed and others are already considering. But any legislation passed would make it harder for policy makers to dial back limits once the financial crisis subsides.

Change in Estate Tax Suggested to Pay for Health Care

From the New York Times.com:

Struggling to find ways to pay for the president’s signature health care overhaul, the administration on Monday proposed to raise nearly $60 billion more over 10 years mostly from tightening rules for inheritance taxes affecting the wealthiest estates.

The Treasury Department’s proposals, and several others affecting taxation of life insurance and some other financial products, are intended to fill a gap that has opened up in President Obama’s health care plans.

Revised estimates show that his main idea for financing the initiative — a 28 percent limit on deductions for Americans in the top two tax brackets — would raise $266.7 billion over a decade, not $318 billion as he had projected in his overall budget blueprint last February.

Filling that gap actually understates Mr. Obama’s problems in paying for reforming health care. The deductions limit has hit a wall of opposition in Congress, with the Democratic chairmen of the House and Senate tax-writing committees among others objecting that it could depress tax-deductible charitable contributions. The proposal accounts for half of Mr. Obama’s proposed $635 billion, 10-year reserve fund to introduce cost-saving changes into health care and to expand coverage to the uninsured; the other half would come from Medicare savings under the Obama budget.

The latest proposals to raise revenues are included in documents from the Treasury and the Office of Management and Budget that provide new details on the preliminary budget released in February, when the administration had been in office just a month.

More than $24 billion of the nearly $60 billion to be raised over 10 years would come from estate and gift taxes that would hit less than three-tenths of 1 percent of estates in any year, according to a senior Treasury official, who spoke to reporters on condition of anonymity.