All the posturing that the US would never repeat the UK's "collosal mistake" of levying banker taxes, is about to be unwound. Senate Democrats Barbara Boxer and James Webb have proposed a 50% tax on bonuses of more than $400,000 in all financial firms having received TARP assistance (yes, that includes Goldman). Look for the market to plunge now as Wall Street fires a warning shot against this proposal from ever seeing the light of day.

From Bloomberg:

Boxer of California and Webb of Virginia introduced legislation to put a one-time levy on the bonuses of employees at banks that took at least $5 billion from the Troubled Asset Relief Program, the senators said yesterday at a Washington news conference. The bill would affect 13 firms and could raise $10 billion to help cut the federal deficit, Boxer said.

“It’s outrageous that many of these companies are doling out millions of dollars in bonuses while the rest of America feels the pain of reckless decisions,” said Boxer, who is seeking re-election in November. American International Group Inc., Citigroup Inc., JPMorgan Chase & Co. and Morgan Stanley are among the companies that would be affected, Boxer said.

The Senate last year retreated from a bill approved by the House that would have put a 90 percent tax on bonuses at companies that received more than $5 billion in aid. The House passed the measure after retention pay for AIG employees sparked a public outcry. The U.S. also hasn’t followed a 50 percent tax on banker bonuses introduced in December by U.K. Chancellor of the Exchequer Alistair Darling.

It seems that taking a look at the chart that demonstrates the Treasury's plunging tax withholdings has changed the opinions of some of the Democrats who know all too well where to look for excess cash to fund soon to be quadrillion dollar deficits. Whether all New York bankers will now pick up and go to Hong Kong, just as the great Asian bubble is preparing to turn the lights out on its capital markets, in anticipation of an imminent asset bubble pop, remains to be seen. Nonetheless, we are certain that with vocal opposition to the bonus tax soon to come from such enlightened Wall Street interests as Shelby and Corker, this proposal has marginal probability of passing at best.