## Examples

## The Associate Publican

Our Associate Publican is a Citigroup employee that earns $180k in 2003 and receives a 3% pay increase each year. Assuming the aforementioned parameters ($80k Bailout Hurdle, 70-50-30-10-5% Clawback above the hurdle), the IRS would calculate his Bailout Liability as follows:

Year | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 |
---|---|---|---|---|---|---|

Compensation | $180 | $185 | $191 | $197 | $203 | $209 |

Bailout Hurdle | - | 80 | 80 | 80 | 80 | 80 |

Comp above Hurdle | - | 105 | 111 | 117 | 123 | 129 |

% Clawback | - | 5% | 10% | 30% | 50% | 70% |

Annual Bailout Liability | - | 5 | 11 | 35 | 61 | 90 |

Total Bailout Liability | 203 |

Assuming a 10% Bailout Tax on additional income, that $203k bailout liability will be repaid in 9 years.

## The Publican's Assistant

Our Publican's Assistant is a Citigroup employee that earns $60k in 2003 and receives a 3% pay increase each year. Assuming the aforementioned parameters ($80k Bailout Hurdle), she would not receive the Mark of Bail, because she never earned more than the hurdle.

Year | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 |
---|---|---|---|---|---|---|

Compensation | $60 | $62 | $64 | $66 | $68 | $70 |

Bailout Hurdle | - | 80 | 80 | 80 | 80 | 80 |

Comp above Hurdle | - | 0 | 0 | 0 | 0 | 0 |

% Clawback | - | 5% | 10% | 30% | 50% | 70% |

Annual Bailout Liability | - | 0 | 0 | 0 | 0 | 0 |

Total Bailout Liability | 0 |

## The Publican in Chief

We know that Bob Rubin earned at least $120 million in the years leading up to the Citigroup bailouts, so for the sake of simplicity, let us assume our Publican in Chief $20 million each year. Assuming the aforementioned parameters ($80k Bailout Hurdle, 70-50-30-10-5% Clawback above the hurdle), the IRS would calculate his Bailout Liability as follows:

Year | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 |
---|---|---|---|---|---|---|

Compensation | $20,000 | $20,000 | $20,000 | $20,000 | $20,000 | $20,000 |

Bailout Hurdle | - | 80 | 80 | 80 | 80 | 80 |

Comp above Hurdle | - | 19,920 | 19,920 | 19,920 | 19,920 | 19,920 |

% Clawback | - | 5% | 10% | 30% | 50% | 70% |

Annual Bailout Liability | - | 996 | 1,992 | 5,976 | 9,960 | 13,944 |

Total Bailout Liability | 32,868 |

Assuming Bob Rubin continues to earn $20 million or so a year, his $32.9 million Bailout Liability would be repaid in about 15-16 years. The Bailout Hurdle is included in the figure above, but it is not visible due to scale.

The Bailout Hurdle prevents our Publican's Assistant from paying a Bailout Liability, and cuts in the Associate Publican's Bailout Liability by over 30%, but Bob Rubin's Bailout Liability remains in full force.

The Bailout Hurdle prevents our Publican's Assistant from paying a Bailout Liability, and cuts in the Associate Publican's Bailout Liability by over 30%, but Bob Rubin's Bailout Liability remains in full force.

## The Junior Analyst Publican

Our Junior Analyst Publican is interesting because it is a case that is closer to the margin. He earns $75k in 2003 and receives a 3% pay increase each year. Assuming the aforementioned parameters ($80k Bailout Hurdle, 70-50-30-10-5% Clawback above the hurdle), he would not have any Bailout Liability for 2004-2005, but a small Bailout Liability for 2006-2008. He has a Total Bailout Liability of $8k, which he would likely pay back in the following tax year.

Year | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 |
---|---|---|---|---|---|---|

Compensation | $75 | $77 | $80 | $82 | $84 | $87 |

Bailout Hurdle | - | 80 | 80 | 80 | 80 | 80 |

Comp above Hurdle | - | 0 | 0 | 2 | 4 | 7 |

% Clawback | - | 5% | 10% | 30% | 50% | 70% |

Annual Bailout Liability | - | 0 | 0 | 1 | 2 | 5 |

Total Bailout Liability | 8 |

In this way, the Bailout Hurdle helps to keep the punishment, the Bailout Liability, proportional. The more that was earned in the years leading up to the bailout, the lesser the degree of shielding by the Bailout Hurdle.

Perhaps the $80k is not the right value for the Bailout Hurdle. Perhaps it should not be the same across the entire country and it should be higher in New York City where the cost of living is higher than other places. Perhaps the Bailout Hurdle could be based on a multiple of average or median income in the city or state where the Employer is based or the Employee resides.

Fortunately, all of this necessary information would be available on the W2 or 1099 and from publicly available sources. It doesn't matter as long as the Bailout Hurdle's calculation is simple (thus impervious to loophole creating lawyers and lobbyists).

Perhaps the $80k is not the right value for the Bailout Hurdle. Perhaps it should not be the same across the entire country and it should be higher in New York City where the cost of living is higher than other places. Perhaps the Bailout Hurdle could be based on a multiple of average or median income in the city or state where the Employer is based or the Employee resides.

Fortunately, all of this necessary information would be available on the W2 or 1099 and from publicly available sources. It doesn't matter as long as the Bailout Hurdle's calculation is simple (thus impervious to loophole creating lawyers and lobbyists).

**Download one of the bailout calculators**and play with the parameters to determine what you think the appropriate formula should be.