Tax Clawback Agreement

You run a major bank with nationwide influence. Think: ShmoopiGroup. You play a little fast and loose with some of your more complicated derivative bets, and suddenly, you're in danger of a bankruptcy.

Unfortunately for the national economy, your bank is so big that the bankruptcy would likely spark a massive negative market response. Like...you could crater the country's entire economic structure. But, fortunately for you, the government isn't going to let that happen. Politicians approve a bailout. You receive $1 billion in taxpayer funds to save your bank from bankruptcy. "Great!" you think, "the corporate retreat to Boca Raton is back on!"

But the government has different ideas about how you should spend that money. When they find out about the Boca Raton trip (and some of the other perks you used bailout funds for), they invoke their tax clawback clause.

This provision of the bailout agreement lets the government take back some of the money they gave you. "Claw it back"...like if you tried to pull a zebra carcass away from a hungry lion. The government will impose a higher tax rate on you for the next few years, taking back some additional funds from your bank in order to repay taxpayers for the money the politicians think you misspent.